Abstract

Three main factors affect mutual fund returns; namely, market movements, investment policy, and active management. In this thesis, we use fifteen years of data to examine each factor’s role in explaining return variations for Canadian balanced and equity funds, and their performances relative to their respective policy benchmarks. We find that active management plays a more important role in explaining both intra- and inter-fund return variations than investment policy after controlling for market effects, and that there is an incremental effect on the importance of active management if we add the constraint of no short selling to policy return portfolios. We also find that active management does not outperform the policy benchmark after controlling for fund size and risk.