The relation between management fees and the mutual funds` performance in Poland in 2015

Main Article Content

Alicja Fraś


Research background: The investor`s expectation of better performance in the case of more expensive mutual funds seems natural and fully justified. However, the rise of passive funds and their surprisingly good results, especially when taking into account their low fees, triggered the discussion. Recent years have brought more and more studies, conducted mostly for the American market, discrediting high-charging, aggressive funds. First analyses in Poland also indicate that the level of fees is not always linked with the fund’s performance.

Purpose of the article: The purpose of the study is to investigate the relation be-tween the fees imposed by the mutual funds and the funds` performance. The idea is to verify, whether higher management fees are associated with top performance and whether it is rational to pay more for capital management.

Methods: In the first step of the study, linearity and direction of the dependency was explored, using scatterplots and correlation analysis. In the second part, the linear regression was created to verify the strength of the relation. One-factor models have been built with the rate of return and standard deviation as independent variables for 1-, 3- and 5-year time horizons. Moreover, two-factor models, including both rate of return and risk has been created, to compare the significance of return and risk factor.

Findings & Value added: The results indicated that more expensive Polish mutual funds in 2015 tended to perform worse in all tested time horizons — both in terms of lower rates of return and higher risk. Especially unexpected are the results of rates of return regression analysis — it turns out that within a sample 1% higher fee implied over 0.6% lower rate of return before fees (in yearly period). Nonetheless, the risk turned out to be more important, explaining the charges variability much better than the rate of return. Another interesting finding of the study is that merely two simple factors (return and risk) explain even as much as 60% of the management fee variability.

Article Details

How to Cite
Fraś, A. (2018). The relation between management fees and the mutual funds` performance in Poland in 2015. Oeconomia Copernicana, 9(2), 245-259.


Bogle, J. C. (2014). The arithmetic of ‘All-In’ investment expenses. Financial Analysts Journal, 70(1). doi: 10.2469/faj.v70.n1.1.
Díaz-Mendoza, A. C., López-Espinosa, G., Martínez M. A., (2014). The efficiency of performance-based fee fund. European Financial Management, 20(4). doi: 10.1111/j.1468-036x.2012.00654.x.
Elton, E. J., Gruber, M. J., Blake C.R. (2003). Incentive fees and mutual funds, Journal of Finance. 58(2). doi:
Fama, E. F., & French, K. R. (2009). Luck versus skill in the cross section of mutual fund returns. Journal of Finance, 65(5). doi: 10.1111/j.1540-6261.2010.01598.x.
Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns, Journal of Finance, 47(2). doi:
Fraś, A. (2017). Investment funds – returns, risk and fees dependencies in Poland and UK in 2015. Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu (Forthcoming).
Gil-Bazo, J., Ruiz-Verdu, P. (2009). The relation between price and performance in the mutual fund industry. Journal of Finance. 64(5). doi: 10.1111/j.1540-6261.2009.01497.x.
Gruber, M. J. (1996). Another puzzle: the growth in actively managed mutual funds. Journal of Finance, 51(3). doi: 10.2307/2329222.
Haslem, J. A., Baker, H. K., & Smith, D. M. (2007). Identification and performance of equity mutual funds with high management fees and expense ratios. Journal of Investing, 16(2). doi: 10.2139/ssrn.2053801.
Jain, P. C, Shuang, Wu, J. (2000). Truth in mutual fund advertising: evidence on future performance and fund flows. Journal of Finance, 55(2). doi: 10.1111/0022-1082.00232.
Malkiel, B. (1995). Returns from investing in equity mutual funds 1971 to 1991, Journal of Finance, 50(2). doi: 10.2307/2329419.
Petajisto, A. (2013). Active share and mutual fund performance. Financial Analysts Journal, 69(4). doi: 10.2139/ssrn.1685942.
Petajisto, A., & Cremers, M. (2009). How active is your fund manager? A new measure that predicts performance. Review of Financial Studies, 22(9). doi: 10.2139/ssrn.891719.
Sharpe, W. F. (1991). The arithmetic of active management. Financial Analysts' Journal, 47(1). doi: 10.2469/faj.v47.n1.7.
Sirri, E. R., Tufano, P. (1998), Costly search and mutual fund flows. Journal of Finance, 53(5). doi: 10.1111/0022-1082.00066.
Tylor R. (1990). Interpretation of the correlation coefficient: a basic review. Journal of Diagnostic Medical Sonography, 6(1).
Warmers, R. (2000). Mutual fund performance: an empirical decomposition into stock-picking talent, style, transactions costs, and expenses. Journal of Finance, 55(4). doi: 10.1111/0022-1082.00263.
Wermers, R. (2003). Are mutual fund shareholders compensated for active management “Bets”? Working Paper, University of Maryland.
Wermers, R., & Jones, R. (2011), Active management in mostly efficient markets, Financial Analysts Journal, 67(6). doi: 10.2469/faj.v67.n6.5.
Yarnold P. (2014) Increasing the validity and reproducibility of scientific findings, Optimal Data Analysis Journal, 3(1).