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IJOEM
4,1 Performance evaluation of Polish
mutual fund managers
Laurens Swinkels
26 Erasmus Research Institute of Management, Erasmus University,
Rotterdam, The Netherlands and
Robeco Quantitative Strategies, Rotterdam, The Netherlands, and
Pawel Rzezniczak
Erasmus School of Economics, Erasmus University Rotterdam,
Rotterdam, The Netherlands

Abstract
Purpose – The purpose of this paper is to empirically assess the investment performance of mutual
fund managers who operate in the Polish market.
Design/methodology/approach – The paper uses monthly mutual fund returns over the period
2000-2007 to investigate the manager’s selectivity and market timing skills. It analyzes three
investment mutual fund investment categories: equity, balanced, and bond mutual funds. The paper
investigates several performance evaluation models, and shows that the findings are robust with
respect to the model choice.
Findings – For each of the three categories, equity, balanced, and bond funds, the paper positive, but
insignificant selectivity skill of the mutual fund managers. No evidence is found of bond or equity
market timing skills in the sample.
Research limitations/implications – Since not many mutual funds exist over a long period, the
sample used is relatively small with 38 mutual funds, while in April 2007 more than 300 funds are
listed in the Polish market.
Practical implications – Private investors in Poland are not worse off by investing in mutual funds
compared to passive market indices. Based on this research, they should select mutual funds that focus
on selectivity rather than market timing.
Originality/value – The research on mutual fund manager skill in emerging economies is scarce.
In addition, little is known on the performance of balanced and bond mutual funds, even in developed
mutual fund markets. This paper contributes by filling both these gaps in the academic literature.
Keywords Emerging markets, Investment funds, Performance levels, Poland
Paper type Research paper

1. Introduction
The purpose of this paper is to analyze the performance of mutual funds that operate in
Poland. The topic of performance evaluation of mutual funds is well documented for
the USA and developed European countries (Otten and Schweitzer, 2002), but research
on the performance of the finance industry in emerging economies is relatively scarce.
International Journal of Emerging
The explosive growth in the Polish mutual fund industry warrants detailed research to
Markets their performance[1]. Our results add to those of Stanko (2002), who investigates the
Vol. 4 No. 1, 2009
pp. 26-42 performance of the Polish pension fund industry. Our results also add to the emerging
q Emerald Group Publishing Limited
1746-8809
literature on mutual fund performance in developing countries. Ferreira et al. (2006)
DOI 10.1108/17468800910931652 claim that mutual fund performance is positively related to the strength of legal
institutions and shareholder protection, implying that mutual funds in emerging Performance of
markets perform less that their counterparts in developed economies. mutual fund
In this paper, we measure the value of mutual fund managers in the Polish financial
industry. We examine their performance using evaluation models for mutual fund managers
managers proposed by Sharpe (1966), Jensen (1968), Treynor and Mazuy (1966), and
Henriksson and Merton (1981). The first method by Sharpe (1966) measures the
reward-to-risk ratio of the investment. This measure is useful for choosing between a set 27
of mutual funds, but makes it hard to directly compare the added value of active asset
management by mutual fund managers. The Jensen (1968) measure corrects for market
risk and primarily measures security selection skill of the mutual fund manager. The
measures of Treynor and Mazuy (1966) and Henriksson and Merton (1981) also account
for market timing skill of the mutual fund manager. In general, the empirical studies
using these performance measures conclude that after taking into account costs the
average mutual fund does not outperform the corresponding market index. We would
like to investigate whether mutual fund managers in Poland possess investment skills.
The study is organized as follows. Section 2 is an introduction to the Polish mutual
fund industry with legal regulation and development of the market[2]. Section 3
presents our empirical analysis on the performance evaluation models for mutual fund
managers, with Section 3.1 devoted to equity mutual funds, Section 3.2 to bond mutual
funds, and Section 3.3 to balanced mutual funds. Section 4 contains our conclusions.

2. Legal background and market development

The development of the financial market in Poland has been characterized by several
important legislative changes. The fundaments for the capital market were established
on March 22, 1991 with the Act on Public Trading in Securities and Trust Funds.
However, until 1998, there was no legal act with particular focus on regulation of
investment funds. That year the Act on Investment Funds came into force. The name
trust fund was replaced by open-end investment fund, which was given legal
personality similar to the US market regulation. In addition, closed-end funds and
specialized open-end investment funds were introduced. Trust Management
Companies managing funds were transformed into fund management companies
(TFI). The full process of transformation was finalized by 2000. Since imposing these
regulations on the mutual fund market, the number of newly established funds
significantly increased. The Polish law was adapted to common European Union (EU)
standards, after Poland joined the EU in May 2004. In order to meet the guidelines, new
Act on Investment Funds was launched on May 27, 2004. The main purpose of the
changes was targeted on harmonization of distribution of the mutual funds within the
EU. In other words, units of Polish investment funds can be distributed in any member
state of EU and foreign investment funds got permission to access the Polish market.
Moreover, the Act introduced new types of funds, which were already established in
developed markets. Among the new fund forms appeared hedge funds with absolute
return strategies and funds with separated sub-funds, so-called umbrella funds.
These sub-funds perform different investment strategies under one principal fund
called the umbrella. Although, there was legal permission for raising money to this
newly introduced form of funds, until the last two years there was negligible market
demand or the initial funding requirements were far too high for the majority of
individual investors.
IJOEM On the basis of legislation criterion derived from Act on Investment Funds in 1998,
4,1 the Polish market consists of three main forms of funds: open-end, specialized
open-end, and closed-end investment funds. The open-end funds are the most popular.
Open-end funds have the right to sell unlimited amount of units, however on every
order of the holder the fund is required to buy back the units at their market value.
Such characteristic determines high liquidity of open-end funds and their main role in
28 the market trade of funds units. Specialized open-end funds differ from the first model
mainly by imposing limitations on the number of potential investors and conditions on
the time when the assets can be liquidated. Closed-end investment funds sell a fixed
number, which can only change by a seasoned offering, of non-public investment
certificates. There is no legal obligatory to buy back certificates by the fund. This
means that investors might be exposed to liquidity risk. However, closed-end funds
offer a broader spectrum of investment opportunities, thus their portfolios could be
more diversified. Article 98 of the Act on Investment Funds extends available assets
for them to foreign currencies, future contracts and commodities.
In this paper, we restrict ourselves to the class of open-end mutual funds for
performance evaluation. We separate the mutual funds universe in three
sub-categories based on their risk and the types of assets they hold. We consider:
(1) equity mutual funds;
(2) bond mutual funds; and
(3) balanced mutual funds.
Figure 1 provides the figures concerning the growth of the investment fund market in
Poland during the period 1992-2006[3]. In April 1991, the Warsaw Stock Exchange and
Polish Securities Commission were introduced simultaneously. Shortly after, in July
1992, the first fund managing company, Pioneer Poland and its mutual fund, was
launched. Until 1995 it was the only investment fund in Poland with monopoly power
Number of investment funds in Poland
300
Equity funds Balanced funds Fixed income funds Money market funds Others

250

200

150

100

Figure 1. 50
Development of the Polish
mutual fund industry
1992-2006 – number of
0
investment funds
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
over the market during those years. In 1995 the market of investment funds started up Performance of
with several introductions of new funds. The growing number of funds has forced the mutual fund
fund managers to compete among each other (Debski (2005)).
The turning point in the short history of the market were the years 1997-1998. At managers
the end of 1996 there were three fund management companies running five funds with
total net asset value of almost 1.4 billion zlotys[4]. Implementation of the Act on
investment funds in its early form lead to a growth of fund management companies up 29
to 12, which at this time managed 1,784 billion zlotys spread into 38 different funds; see
Figure 2. As more and more fund management companies came into existence and new
funds were introduced, monopoly power of Pioneer weakened. Pioneer market share
decreased from 68 percent at the beginning of 1998 to 43 percent till the end of 2000
(Al-Kaber, 2000).
In December 2001, Minister of Finance Professor Marek Belka imposed tax on
capital gains with the initial rate of 20 percent, lowered in January 2004 to 19 percent.
Investment funds in Poland started to act as an alternative for savings accounts,
mainly due to the fact that in case of funds tax payment was deferred until the moment
of selling the units by investor. The period 2002-2003 was the time of success for
closed-end funds. Capital gains on buying certificates in public offering issued by
closed-end funds were tax-exempt until the end of 2003.
Many changes took place after adjusting Polish to the common European law system.
The latest form of the Act on Investment Funds dates from May 27, 2004. The market is
not closed for foreign funds anymore and local funds are widening the range of available
products. The new legal act gave additional possibilities, such as umbrella funds.
Different sub-funds gathered under one “umbrella” have distinctive investment
strategies so that investor can switch between sub-funds in reaction to markets trends.
Another aspect, why umbrella funds are becoming so popular is the lack of legal
personality by the sub-funds. This fact determines tax exemption of umbrella funds on
capital gains, when assets are shifted from one sub-fund to another. The only payment

Assets of investment funds in Poland

1,20,000
Equity funds Balanced funds Fixed income funds Money market funds Others

1,00,000

80,000

60,000

40,000
Figure 2.
Development of the Polish
20,000 mutual fund industry
1992-2006 – assets under
management per
0 investment category
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
IJOEM appears when the investor sells his units back to the fund. Another hybrid form, which
4,1 was launched on the Polish market, were fund-of-funds: vehicles investing in assets of
funds around the globe, mainly through recognized institutions. Its structure is similar
to that of umbrella funds, so that tax on capital gains is paid only once, when the investor
closes his position in the fund-of-funds. The main barrier of investing abroad was the
relatively large amount required to enter the fund. For a long time since their
30 establishment the initial entrance to funds has been set on the level of 10,000 zlotys, while
the average monthly gross salary of 2,400 zlotys in 2004[5,6]. Other investment vehicles
that appeared were capital-guaranteed funds with a longer investment horizon (at least
3 years). Besides, fixed guaranteed income, they provide usually additional gains, which
amount depends usually on the return of international stock market indices.

3. Performance evaluation of mutual fund managers

The sample in this paper consists of 38 Polish mutual funds over the period February
2000-April 2007. Before 2000, there were only a few mutual funds available. We
excluded many of the 359 funds existing at the end of April 2007, because they were
established in the last two years and hence do not have sufficient data available for
quantitative analysis[7]. The monthly data on mutual funds unit closing prices, stock
and bond and money market indices were calculated based on the internet site of the
financial portal www.money.pl. The returns are net of expenses. The monthly returns
from investments in the Polish stock market are proxied by the Warsaw Stock Index,
the oldest and largest stock exchange index in Poland. It is a total return index
including paid dividends. To measure relative performance of bond funds MSCI
Poland Bond Index serves as a benchmark. For the risk-free interest rate the yield on a
three-month zloty deposit for households is used. This seems to be the relevant
risk-free rate for retail investors with a three-month investment horizon. The data on
the risk-free interest rate is available from the National Bank of Poland, www.nbp.pl

3.1 Equity mutual funds

Our sample of 38 mutual funds contains 13 mutual funds with an equity market
objective. The basic statistics over the period January 2000 until April 2007 of these
mutual funds are described in Table I. The highest average excess return with respect
to the risk-free rate is obtained by Arka BZ WBK Akcji FIO and is 1.47 percent per
month. Most other funds are slightly above 1 percent per month, but the exception is
BPH FIO Akcji Dynamicznych Spółek that underperforms the risk-free rate by
0.40 percent per month[8]. The risk measured by the SD is for all funds lies between 4.9
and 6.6 percent per month, indicating that they are indeed investing a large part of
their portfolio in equities.
The first performance measure that we investigate is the Sharpe ratio, which is
defined as:
P
1=T Tt¼1 Ri;t 2 Rf R 2 Rf
  ffi¼ i
SRi ¼ rffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ; ð1Þ
PT 1
PT 2 s{Ri }
1=T t¼1 Ri;t 2 T t¼1 Ri;t

with Ri,t the return of fund i in period t and Rf the risk-free rate. This traditional
performance evaluation measure indicates the compensation in average return that the
January 2000-April 2007 Characteristics of the excess returns (monthly)
Equity mutual funds Average Minimum Median Maximum SD Sharpe ratio (monthly)

Arka BZ WBK Akcji FIO 1.47 2 10.79 1.26 20.98 6.21 0.236
BPH FIO Ackji 1.17 2 13.20 1.19 21.33 5.73 0.205
BPH FIO Ackji Dynamicznych Spółek 2 0.40 2 12.75 0.04 17.67 5.84 20.068
DWS Polska FIO Ackji 0.70 2 13.36 0.79 17.67 5.40 0.130
DWS Polska FIO Ackji Plus 0.99 29.73 1.18 13.45 4.94 0.200
ING FIO Akcji 1.20 2 14.57 1.31 20.39 6.61 0.182
Legg Mason Akcji 1.03 2 13.55 1.52 17.24 5.95 0.173
Pioneer Akcji Polskich FIO 0.87 2 15.25 1.28 19.08 6.52 0.133
PKO CS Akcji FIO 0.92 2 13.25 1.35 14.52 5.55 0.166
PZU FIO Akcji KRAKOWIAK 0.83 2 11.82 0.78 19.49 5.29 0.158
SEB FIO Akcji 0.83 2 14.06 1.01 20.03 5.93 0.140
SKARBIEC-AKCJA FIO Akcji 1.25 2 15.45 1.07 26.04 6.90 0.182
UniKorona Akcje FIO 1.36 2 12.67 1.51 21.27 6.39 0.212
Warsaw Stock Index (WIG) 1.08 2 14.43 1.53 20.19 6.83 0.157
Notes: Descriptive statistics are based on the monthly net asset values of the mutual funds over the period January 2000-April 2007. The first column
contains the name of the mutual fund. The next column contain the average, minimum, median, and maximum monthly excess return over the sample
period. The next column contains the SD of the monthly excess returns. The last column contains the Sharpe ratio, defined as the monthly excess return
divided by the SD. The last row contains not an equity mutual fund, but the major Polish equity index, for comparison

Descriptive statistics
managers

of Polish equity mutual

funds
mutual fund

31

Table I.
Performance of
IJOEM mutual funds supplied for each unit of risk measured by the SD. The last column of
Table I shows the Sharpe ratios of all equity funds over the period January 2000-April
4,1 2007. The market index has a Sharpe Ratio of 0.157. There are 9 out of 13 funds with a
higher Sharpe Ratio than the market. From a mean-variance perspective these funds
performed better than the market. Since the mutual fund returns used are net returns,
we can conclude that the majority of funds showed a better reward-to-risk than a
32 passive stock market index for Polish private investors.
Jensen (1968) introduced relative performance measure derived from the Capital
Asset Pricing Model (CAPM). The CAPM requires that the expected mutual fund
returns are linearly depending on their covariance with the market. We investigate
whether this is the case by estimating regression equation:
Ri;t 2 Rf ¼ a þ b · ðRm;t 2 Rf Þ þ 1i;t ; ð2Þ
with Rm,t the return of the market period t, and 1i,t the residual return. Jensen (1968)
indicated that the constant a from this regression measures the stock selection ability of
the mutual fund management and b the exposure towards the market. The CAPM states
that the a-s should be zero for each of the funds. In Table II we display the estimated
coefficients from the regression equation (2) that was estimated using the ordinary least
squares method. The sensitivity of the fund’s return to the market index, as measured by
b, is in general between 0.6 and 0.9, indicating a high sensitivity of the value of these
mutual funds to the movement of the Polish equity market as a whole. We observe that
the estimated a of only 2 out of 13 mutual funds are negative. However, only 1 out of 11
positive a-s is statistically significant. From these results we conclude that there is little
evidence that mutual funds perform worse than the passive equity market index.
The selectivity measure a from equation (2), however, does not take into account
potential market timing skill that these managers have by moving in and out of the
market, or buying stocks with high and low b depending on the market environment.
The performance evaluation models of Treynor and Mazuy (1966) and Henriksson and
Merton (1981) take into account market timing. Treynor and Mazuy (1966) develop a
model in which the mutual fund manager is expected to predict the sign and size of the
market movement:

Ri;t 2 Rf ¼ a þ b · ðRm;t 2 Rf Þ þ tTM · ðRm;t 2 Rf Þ2 þ 1i;t ; ð3Þ

with tTM the parameter measuring the market timing skill. This performance
evaluation model assumes that the manager has private information about the size and
magnitude of the market return and takes linear deviations from his long-term average
market exposure. Henriksson and Merton (1981) develop a model in which the manager
is assumed to have information about the direction of market return only, and not the
size of the return. This model is:
Ri;t 2 Rf ¼ a þ b · ðRm;t 2 Rf Þ þ tHM · I {Rm;t . Rf } · ðRm;t 2 Rf Þ þ 1i;t ; ð4Þ
with I{Rm,t . Rf} an indicator function taking the value of one when the market return
is above the risk-free rate and zero otherwise. The parameter tHM measures the
managerial timing skill.
The estimation results of these timing models are also displayed in Table III.
The estimated a-s are positive for all but one mutual fund, with again only
January 2000-April 2007 Characteristics of the excess returns (monthly)
Bond mutual funds Average Minimum Median Maximum SD Sharpe ratio (monthly)

BPH FIO Obligacji 1 0.15 2 2.27 0.17 2.00 0.65 0.224

DWS Polska FIO Dłużnych Papierów 0.07 2 1.98 0.03 1.89 0.78 0.090
ING FIO Obligacji 0.18 2 2.42 0.15 5.87 1.17 0.156
Legg Mason Obligacji FIO 0.19 2 1.71 0.09 2.33 0.74 0.255
Pioneer Obligacji FIO 0.22 2 2.32 0.20 2.83 0.74 0.293
Pioneer Obligacji Plus FIO 0.16 2 3.29 0.12 2.76 0.75 0.213
PKO CS Obligacji FIO 0.21 2 2.03 0.12 2.84 0.74 0.285
PZU FIO Papierów Dłużnych POLONEZ 0.25 2 1.35 0.20 2.21 0.67 0.372
SEB Obligacji Bonów Skarbowych 0.21 2 0.51 0.15 1.26 0.28 0.734
SKARBIEC-OBLIGACJA FIO 0.18 2 2.23 0.13 2.08 0.70 0.259
UniKorona Obligacje FIO 0.30 2 1.64 0.20 3.89 0.86 0.356
Morgan Stanley Polish Bond Index 0.43 2 3.88 0.32 5.51 1.48 0.293
Notes: Descriptive statistics are based on the monthly net asset values of the mutual funds over the period January 2000-April 2007. The first column
contains the name of the mutual fund. The next column contain the average, minimum, median, and maximum monthly return over the sample period.
The next column contains the SD of the monthly returns. The last column contains the Sharpe ratio, defined as the monthly excess return divided by the
SD. The last row contains not a bond mutual fund, but the major Polish bond index, for comparison

Descriptive statistics
managers

of Polish bond mutual

funds
mutual fund

33

Table II.
Performance of
 4,1

34

funds
IJOEM

Table III.

of Polish equity mutual

Performance evaluation
January 2000-April 2007 Jensen (1968) Treynor-Mazuy (1966) Henriksson-Merton (1981)
Equity mutual funds Raw average (percent) a (percent) b a (percent) b t a (percent) b t

Arka BZ WBK Akcij FIO 1.47 0.70 * 0.72 0.69 0.71 0.03 0.97 0.77 2 0.10
BPH FIO Akcij 1.17 0.96 0.20 2.24 * * * 0.28 22.90 * * * 3.49 * * * 0.74 2 0.96 * * *
BPH FIO Akcij Dynamicznych Spółek 20.40 20.72 0.30 20.38 0.32 20.77 2 0.39 0.37 2 0.12
DWS Polska FIO Akcij 0.70 0.05 0.60 0.29 0.62 20.53 0.70 0.74 2 0.24
DWS Polska FIO Akcij Plus 0.99 0.35 0.60 0.50 0.61 20.35 0.80 0.69 2 0.17
ING FIO Akcij 1.20 0.32 0.82 0.30 0.82 0.04 0.60 0.88 2 0.11
Legg Mason Akcij FIO 1.03 0.24 0.73 0.62 0.76 20.85 * 1.16 0.93 2 0.34 * *
Pioneer Akcij Polskich FIO 0.87 20.04 0.84 0.13 0.85 20.38 0.58 0.97 2 0.23
PKO CS Akcij FIO 0.92 0.12 0.74 0.39 0.75 20.60 * 0.75 0.87 2 0.24 *
PZU FIO Akcij KRAKOWIAK 0.83 0.11 0.67 0.08 0.67 0.08 0.01 0.65 0.04
SEB FIO Akcij 0.83 0.05 0.72 0.30 0.73 20.56 0.67 0.85 2 0.23
SKARBIEC-AKCJA FIO Akcij 1.25 0.38 0.81 0.45 0.82 20.16 0.54 0.85 2 0.06
UniKOrona Akcje FIO 1.36 0.46 0.84 0.53 0.84 20.16 0.60 0.87 2 0.06
Notes: This table contains, in addition to the names of the funds and the raw average returns, the results from three performance evaluation models.
First, the model by Jensen (1968), for which the a and the b are displayed. Second and third are the timing models by Treynor and Mazuy (1966) and
Henriksson and Merton (1981), for which in addition to a and b also the timing-parameter t are displayed. a’s and t’s with t-statistics above 1.65, 1.96, and
2.58 (corresponding to 10, 5, and 1 percent significance levels) are indicated with *, * *, and * * *, respectively
one being statistically significant for the TM model and three for the HM model. The Performance of
timing coefficients are negative for most funds, and statistically significant for three mutual fund
mutual fund, which indicates perverse market timing skill.
Summarizing, we conclude that Polish mutual funds do not perform worse than the managers
equity market index, as most Sharpe ratios are higher than the passive market index
and Jensen’s a-s are not significantly different from zero. Polish mutual fund managers
do not seem to possess equity market timing skills, as the timing coefficients are more 35
often negative than positive.

3.2 Bond mutual funds

There is surprisingly little academic research on the performance evaluation of bond
mutual funds[9]. This is strange, because bond mutual funds form an important class
in the mutual fund industry. In the Polish market there are equally many bond mutual
funds as equity mutual funds, although the size of the equity mutual fund market is
almost double the size. Table II contains the descriptive statistics of the bond funds.
We see that the bond funds have more modest investment returns than the equity
mutual funds we saw before. Because of on average declining interest rates we see that
the Polish government bond index has a Sharpe ratio exceeding the equity market
Sharpe ratio, with 0.293 versus 0.157. We see that all bond mutual funds outperform
the three-month deposits, but only four have a higher Sharpe ratio than the bond index.
In Table IV we display the Jensen’s a-s for the bond mutual funds relative to the
bond index. We observe that the investments made by the bond mutual funds are not
close to this index, as b-s are not close to one for many funds. This could be due to
shorter interest rate duration of the mutual funds compared to the bond index used in
this research. The risk-adjustment nevertheless indicates that the a performance of
several bond funds has become significantly negative for two mutual funds, versus
only three positive and statistically significant. Many of the excess returns provided by
the bond funds are close to zero after the risk-adjustment with this one-factor model.
When analyzing the bond market timing results we see that the results are mixed: we
see a couple of mutual funds with significantly positive market timing skills, and some
with significantly negative market timing skills. We observe that positive selectivity
skill as measured by a is sometimes offset by negative market timing skill, and vice
versa. The implication of this result is that investors in these funds have to take into
account the performance of both types of skill, as selectivity skill and market timing
skill cannot be isolated when buying a mutual fund.

4. Balanced mutual funds

The most popular type of mutual funds both in number of funds and assets under
management are balanced mutual funds. These funds have been largely ignored in
academic research thus far. These balanced funds do not specialize in equities or
bonds, but combine these assets in one portfolio. In order to evaluate these mutual fund
managers, a single-index model as we used above for the equity and bond mutual
funds is not sufficient anymore. Hence, we combine the equity and bond indices in a
two-index model, and measure selectivity and timing skill relative to both indices.
Equations (2) and (3) then change into:

Ri;t 2 Rf ¼ a þ be · ðRm;t 2 Rf Þ þ bb · ðRb;t 2 Rf Þ þ 1i;t ; ð5Þ

 4,1

36

funds
IJOEM

Table IV.

of Polish bond mutual

Performance evaluation
Jensen (1968) Treynor-Mazuy (1966) Henriksson-Merton (1981)
Bond mutual funds Raw average (percent) a (percent) b a (percent) b t a (percent) b t

BPH FIO Obligacji 1 0.15 0.00 0.34 0.07 0.39 2 3.92 * * * 0.14 * * 0.51 2 0.27 * * *
DWS Polska FIO Dłużnych Papierów 0.07 20.10 * 0.39 20.06 0.43 2 2.43 * 20.06 0.44 2 0.07
ING FIO Obligacji 0.18 20.12 * 0.69 20.16 * * 0.65 2.62 * 20.2 * * 0.59 0.16
Legg Mason Obligacji FIO 0.19 0.02 0.39 0.02 0.39 2 0.08 20.01 0.36 0.05
Pioneer Obligacji FIO 0.22 0.04 0.41 0.07 0.43 2 1.59 0.07 0.44 2 0.05
Pioneer Obligacji Plus FIO 0.16 0.00 0.37 0.10 * 0.43 2 5.45 * * * 0.16 0.56 2 0.30 * * *
PKO CS Obligacji FIO 0.21 0.01 0.46 20.01 0.44 0.96 20.05 0.38 0.13 *
PZU FIO Papierów Dłużnych POLONEZ 0.25 0.10 * * 0.35 0.14 * * * 0.38 2 2.33 * * 0.10 0.36 2 0.02
SEB Obligacji Bonów Skarbowych 0.21 0.17 * * * 0.09 0.16 * * * 0.09 0.19 0.16 * * * 0.08 0.02
SKARBIEC-OBLIGACJA FIO 0.18 0.02 0.37 0.01 0.36 0.60 20.04 0.30 0.11
UniKorona Obligacje FIO 0.30 0.08 * 0.52 0.05 0.49 1.90 * 20.01 0.41 0.16 *
Notes: This table contains, in addition to the names of the funds and the raw average returns, the results from three performance evaluation models.
First, the model by Jensen (1968), for which the a and the b are displayed. Second and third are the timing models by Treynor and Mazuy (1966) and
Henriksson and Merton (1981), for which in addition to a and b also the timing-parameter t are displayed. a’s and t’s with t-statistics above 1.65, 1.96, and
2.58 (corresponding to 10, 5, and 1 percent significance levels) are indicated with *, * *, and * * *, respectively
 Ri;t 2 Rf ¼ a þ be · ðRm;t 2 Rf Þ þ bb · ðRb;t 2 Rf Þ Performance of
ð6Þ mutual fund
þ te;TM · ðRm;t 2 Rf Þ2 þ tb;TM · ðRb;t 2 Rf Þ2 þ 1i;t ;
managers
and equation (4) extends in a similar fashion. The raw performance and Sharpe ratios
of these balanced funds can be found in Table V. These balanced mutual funds have
returns and SD that are in between those of the equity and bond mutual funds that we 37
investigated above. This also holds for the Sharpe ratio performance statistic, which is
for most funds in between the Sharpe ratio for the bond and equity indices. This is in
line with our expectations, and indicate that private investors in Poland that would like
to invest in both bond and equities could use a balanced fund to achieve this.
The results from the two-index model can be found in Table VI. When analyzing the
a from equation (5), we see that most funds have a statistically insignificant, but
positive a. There is one fund with a significant a of 0.25 percent per month and one
fund with a significant a of 2 0.36 percent per month. When we use the models for
performance evaluation taking into account market timing skills, we observe no
significant skill for bond market timing, and statistically negative equity market
timing skill for 5 out of 14 mutual funds, irrespective of the performance evaluation
model that we consider. This indicates that balanced mutual funds do not perform
worse that passive investment strategies in equity and bond market indices, but
managers are generally not able to predict the direction and/or magnitude of the bond
and equity markets.

5. Conclusions
In this paper, we evaluate the performance of the Polish mutual fund market by
analyzing the monthly returns of 38 mutual funds over a period of more than 7 years.
We divide our performance analysis in three subgroups:
(1) equity;
(2) bond; and
(3) balanced mutual funds.
Our analysis yields the conclusion that the return-to-risk as measured by the Sharpe
ratio of Polish mutual funds is comparable to that of the bond and equity market
indices, indicating that mutual fund managers do not perform worse than a passive
investment in a market index, after taking into account fund management costs.
When we analyze the Jensen’s a, we reach similar conclusions for each of the three
categories of mutual funds. There is some positive but statistically insignificant
selectivity skill, indicating that Polish mutual fund managers have no selectivity skill
worse than the passive market index. Polish mutual fund managers do not seem to
possess bond and equity market timing skill. Our results on performance evaluation is
opposite to those from the Polish pension fund analysis from Stanko (2002), as he finds
positive market timing skill as the main performance driver.
Our results indicate that private investors did not lose out by investing in the “old”
investment funds that were already listed in Poland since 2000. Given the spectacular
rise of the number of funds and the assets under management over the past two years,
we leave a comparison between pre- and post-opening of the Polish mutual fund
market for further research.
 4,1

38

funds
Table V.
IJOEM

Descriptive statistics
of Polish balanced mutual
January 2000-April 2007 Characteristics of the excess returns (monthly)
Balanced mutual funds Average Minimum Median Maximum SD Sharpe ratio (monthly)

Arka BZ WBK Zrównoważony FIO 0.77 213.10 0.94 17.35 4.93 0.156
DWS Polska FIO Zrównoważony 0.47 26.41 0.68 7.79 3.29 0.141
ING FIO Zrównoważony 0.61 27.35 0.77 9.75 3.44 0.177
Pioneer Zrównoważony FIO 0.38 29.59 0.81 9.85 3.47 0.109
PKO Zrównoważony FIO 0.46 27.79 0.75 8.75 3.21 0.143
SEB Zrównoważony Wzrostu 0.58 27.80 0.67 7.86 3.14 0.185
SKARBIEC-WAGA FIA Zabezpieczenia 0.67 29.63 0.40 16.44 3.99 0.167
UniKorona Zrównoważony FIO 0.76 26.82 0.98 11.98 3.63 0.208
DWS Polska FIO Zabezpieczenia 0.41 25.71 0.65 6.86 2.09 0.199
Legg Masopn Senior SFIO 0.41 28.58 0.47 11.20 2.17 0.191
Pioneer Stabilnego Wzrostu FIO 0.12 29.14 0.53 7.62 2.86 0.043
PKO CS Stabilnego Wzrostu FIO 0.40 24.85 0.42 7.29 2.02 0.199
PZU FIO Stabilnego Wzrostu MAZUREK 0.48 27.78 0.33 10.53 2.53 0.191
SEB Stabilnego Wzrostu 0.41 28.02 0.24 8.76 1.67 0.245
Warsaw Stock Index (WIG) 1.08 214.43 1.53 20.19 6.83 0.157
Morgan Stanley Polish Bond Index 0.43 23.88 0.32 5.51 1.48 0.293
Notes: Descriptive statistics are based on the monthly net asset values of the mutual funds over the period January 2000-April 2007. The first column
contains the name of the mutual fund. The next column contain the average, minimum, median, and maximum monthly return over the sample period.
The next column contains the SD of the monthly returns. The last column contains the Sharpe ratio, defined as the monthly excess return divided by the
SD. The last two rows contain no mutual funds, but the major Polish equity and bond index, for comparison
 Jensen (1968) Treynor-Mazuy (1966) Henriksson-Merton (1981)
Raw average a a a
Balanced mutual funds (percent) (percent) bb be (percent) bb be tb te (percent) bb be tb te

Arka BZ WBK
Zrównoważony FIO 0.77 0.29 20.24 0.55 0.49 20.21 0.56 23.02 20.35 1.08 0.17 0.65 20.67 20.17
DWS Polska FIO
Zrównoważony 0.47 0.09 20.13 0.40 0.33 20.09 0.41 23.56 20.39 0.69 * 0.11 049 20.41 20.15
ING FIO Zrównoważony 0.61 0.06 0.09 0.47 0.07 0.09 0.47 0.64 20.04 0.16 0.01 0.50 0.12 20.06
Pioneer Zrównoważony
FIO 0.38 20.18 0.12 0.47 0.02 0.14 0.49 22.48 20.36 * * 0.35 0.20 0.57 20.15 20.17 * * *
PKO Zrównoważony FIO 0.46 20.05 0.08 0.44 0.07 0.06 0.44 2.36 20.35 * * 0.15 20.10 0.51 0.29 20.13 * *
SEB Zrównoważony
Wzrostu 0.58 0.17 20.07 0.41 0.45 * * 20.03 0.43 24.10 20.47 * * 0.79 * * * 0.19 0.50 20.43 20.15 * *
SKARBIEC-WAGA FIO
Zabezpieczenia 0.67 0.24 20.25 0.50 0.25 20.31 0.50 5.05 20.22 0.07 20.68 0.53 0.70 20.01
UniKorona
Zrównoważony FIO 0.76 0.25 * 20.08 0.50 0.18 20.13 0.50 5.00 20.05 0.02 20.36 0.50 0.46 20.31 * * *
DWS Polska FIO
Zabezpieczenia 0.41 0.13 0.07 0.23 0.32 0.00 0.24 5.50 20.62 * * * 0.36 20.14 0.31 0.32 0.00
Legg Masopn Senior SFIO 0.41 0.07 0.26 0.21 0.08 0.20 0.21 5.11 20.20 20.07 0.05 0.21 0.34 0.04
Pioneer Stabilnego
Wzrostu FIO 0.12 20.36 0.25 0.35 0.00 0.23 0.37 1.33 20.87 * * * 0.36 0.09 0.53 0.23 0.03
PKO CS Stabilnego
Wzrostu FIO 0.40 0.07 0.18 0.24 0.06 0.14 0.24 3.52 20.12 20.09 20.01 0.24 0.30
PZU FIO Stabilnego
Wzrostu MAZUREK 0.48 0.21 20.04 0.27 0.19 20.07 0.26 3.03 20.07 20.11 20.28 0.24 0.39
SEB Stabilnego Wzrostu 0.41 0.22 0.14 0.12 0.26 0.14 0.12 0.74 20.12 0.20 0.24 0.10 20.16
Notes: This table contains, in addition to the names of the funds and the raw average returns, the results from three performance evaluation models.
First, the model by Jensen (1968), for which the a and the b are displayed. The “bb” refers to the b with respect to the bond market, and “be” the b with
respect to the equity market. Second and third are the timing models by Treynor and Mazuy (1966) and Henriksson and Merton (1981), for which in
addition to a and b also the timing-parameter t are displayed. a’s and t’s with t-statistics above 1.65, 1.96, and 2.58 (corresponding to 10, 5, and 1 percent
significance levels) are indicated with *, * *, and * * *, respectively

Performance evaluation
managers

of Polish balanced mutual

funds
mutual fund

39

Table VI.
Performance of
IJOEM Notes
4,1 1. Several country-specific studies to the performance of the mutual fund industry are available
for, e.g. Sweden (Dahlquist et al., 2000), Italy (Cesari and Panetta, 2000), and Japan (Chan and
Yamada, 1997), Mexico (Muga et al., 2007), and Greece (Sorros, 2001).
2. A detailed overview of developments of mutual fund markets around the world in the 1990-s
can be found in Klapper et al. (2004).
40 3. The Appendix (Table AI) contains the table with the numbers on which Figures 1 and 2 are
based.
4. Chamber of Fund and Asset Management (2007) available on www.izfa.pl
5. Chamber of Fund and Asset Management (2007), available on www.izfa.pl
6. Central Statistic Office of Poland (2007), available on www.stat.gov.pl
7. Analizy Online 2007, at: http://www.analizy.pl/analizy_online/. Unfortunately, our sample
does not contain the few funds that disappeared through closure or merger during the
sample period, which might affect our results by so-called survivorship bias.
8. BPH FIO Akcji Dynamicznych Spółek fund changed investment Policy In June 2006 from US
to Polish equity.
9. Notable exceptions are Blake et al. (1993), Detzler (1999), and Huij and Derwall (2008).

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Klapper, L., Sulla, V. and Vittas, D. (2004), “The development of mutual funds around the world”, Performance of
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Appendix
(The Appendix Table follows overleaf.)

Corresponding author
Laurens Swinkels can be contacted at: lswinkels@few.eur.nl

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 4,1

42
IJOEM

Table AI.

industry 1992-2006
Polish mutual fund
Development of the
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Equity funds 0 0 0 1 1 8 17 22 25 26 30 28 28 34 53
0 0 0 2 306 660 494 755 1,056 1,123 1,093 2,483 5,071 7,293 22,870
Balanced funds 1 1 1 2 3 7 12 19 25 31 29 30 31 61 74
2 853 1,421 682 1,012 1,159 906 1,226 1,546 1,811 1,582 7,755 13,065 27,388 52,063
Fixed income funds 0 0 0 1 1 3 7 14 16 19 26 31 44 53 55
0 0 0 10 46 66 256 893 1,213 6,750 14,398 16,245 12,480 15,800 11,001
Money market funds 0 0 0 0 0 2 2 7 15 18 22 23 24 25 29
0 0 0 0 0 15 158 278 3,284 2,436 3,892 5,440 5,115 8,348 7,837
Others 0 0 0 0 0 0 0 0 0 0 7 16 20 26 51
0 0 0 0 0 0 0 0 0 0 1,802 1,305 1,700 2,456 5,065
Total 1 1 1 4 5 20 38 62 81 94 114 128 150 199 262
2 853 1,421 694 1,364 1,900 1,784 3,152 7,098 12,121 22,766 33,231 37,434 61,287 98,837
Fund management companies 1 1 1 2 3 7 12 14 16 19 16 17 19 21 24
Sources: Chamber of Fund and Asset Management, Poland, 2007. This table contains annual figures on the number of funds (top-line) and assets under
management (bottom-line) for several categories of mutual funds over the period 1992-2006. The assets under management are measured in million of
Polish zlotys
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.