This study examines the performance of actively managed unit trusts relative to passive investment strategies. In particular, it is viewed that professional managers do not possess superior skills and therefore are not capable of 'beating' the market on a consistent basis.
An empirical investigation is undertaken using data on 262 Australian unit trusts between January 1986 and December 1995. In an attempt to overcome some of the benchmark problems faced in earlier performance studies, a relatively unique methodology for generating benchmarks is used, namely style analysis.
The results partially support the above proposition, in that unit trusts, on average, cannot earn positive risk-adjusted abnormal returns relative to appropriate market indexes. In addition, there is evidence indicating that the performance of unit trusts persists over time, suggesting that some managers are more skillful than others in achieving superior performance.