Are You Smarter Than a CFA’er?

Oguzhan Dincer
Illinois State University
odincer@ilstu.edu

Russell B. Gregory-Allen*
Massey University
r.gregory-allen@massey.ac.nz

Hany A. Shawky
University at Albany, SUNY, Albany
h.shawky@albany.edu

Second Draft: January 2010

*
Corresponding author
 Are You Smarter Than a CFA’er?

Abstract

Several studies have examined whether a portfolio manager having an MBA degree or
being a CFA charterholder leads to superior portfolio performance. These studies however have
generally yielded mixed or inconclusive results. A possible reason for the mixed findings is that
most prior studies have considered the impact of a manager having either an MBA or a CFA as
separate and independent of each other on portfolio performance. Moreover, most previous
studies have not controlled for managers’ style targets. We examine MBAs, CFAs and
investment experience, controlling for market conditions and style targets. We find no difference
in return attributable to MBA, CFA or Experience; but more significantly (especially in light of
recent events), CFAs reduce and MBAs increase portfolio risk.
 Are You Smarter Than a CFA’er?

Introduction
Researchers have long been interested in the agency aspects of the management of
investment portfolios. This has led to a large number of studies that attempt to relate manager
characteristics to portfolio performance. Human capital theory implies that managers with
greater ability should, at least in the long run, have portfolios with better performance than
"average". A natural extension of this is that managers with better education ought to exhibit
better performance. Common forms of education for portfolio managers are generally a formal
MBA degree, a CFA certification, or accumulated experience from the School of Hard Knocks.
In this paper, we examine whether there is a discernable impact of the type of education
managers have on the performance of their portfolios. Using a unique data base (PSN) that
affords us the opportunity to obtain more detailed data on managers, we find that after adjusting
for risk and portfolio style targets, there is no significant difference in the return performance of
these portfolios that is attributable to any of these educational levels. More importantly however,
we find that managers with CFA designations have portfolios with substantially lower risk, while
managers with MBA degrees have portfolios with higher levels of risk.
The research in this area has focused primarily on two issues. First, does the CFA
designation add value? and second, does an MBA degree add value? The stream of studies on
the value of an MBA has also had some interest in relating the “quality” of the MBA granting
school to the portfolio performance of the manager. A few studies have included both the MBA
and the CFA in their analysis and some have also included other manager characteristics, such as
gender and age. For instance, Shukla and Singh (1994) and Switzer and Huang (2007) find that
CFA’s outperform other managers, while Golec (1996) finds that MBA’s do. Chevalier and
Ellison (1999) and Gottesman and Morey (2006) find that MBA’s from schools with higher
average test scores perform better. On the other hand, Boyson (2002) finds that both CFA’s and
MBA’s deliver negative performance.
Related Literature
A quick review of the literature reveals that it is difficult to discern a particular pattern
with respect to the relative value of a given educational degree or even the marginal value of any
individual degree. As noted recently in Wright (2010), one of the problems in finding
consistency is variations in methods. Research studies have used different measures of return,
different comparison factors, and different samples and time periods. Some of the studies have
looked only at the value of a CFA designation while others examined only the value of an MBA.
Furthermore, from a methodological viewpoint, some studies have used only returns in excess of
the US T-bill, while others have used returns in excess of a benchmark. Most of the studies
however have used the CAPM or some extensions of it to estimate performance.
Shukla and Singh (1994) were the first to examine the value of a CFA designation.
Using alphas from a single factor market model over the period 1988-1992, they find that
portfolios with at least one CFA designated manager on the team performed better than
portfolios without such a person, but that the portfolios also had higher risk. More recently,
Switzer and Huang (2007) examine the impact of several manager characteristics such as an
MBA, CFA, gender, age and experience, on the performance of 1004 small and mid-cap funds.
They find that managers with the CFA designation deliver better performance, but that tenure,
experience, and gender do not have a significant impact on performance.
Golec (1996) examines the impact of age, job tenure, and MBA on portfolio
performance. With a sample of 530 mutual funds over the period 1988-1990, he estimates
performance using a standard market model, but controls for style objectives. He finds evidence
of better performance from younger managers with longer tenure, and from managers with
MBA's.
Chevalier and Ellison (1999) also examine the impact of age, job tenure, and average
SAT scores of the manager’s undergraduate school on portfolio performance. They examine
both returns in excess of a market index as well as excess returns from the Fama-French three
factor model. They find that managers with MBA’s produce higher returns, but that these higher
returns are entirely due to higher risk. They also find that younger managers do better, and
managers from undergraduate schools with higher SAT's have higher returns.
Gottesman and Morey (2006) extend the work of Chevalier and Ellison (1999). They use
conditional Carhart alphas to examine the performance of 518 mutual funds over the period
2000-2003. They find that the average GMAT of the manager's MBA program is positively
related to portfolio performance. They further find that CFA and PHD are unrelated to
performance. Instead of mutual funds, Boyson (2002) examines the same issue for a sample of
288 hedge-funds over the period 1994-2000. She finds that both an MBA and tenure are
negatively related to performance, but that the evidence is mixed with respect to the performance
of managers with a CFA. She also finds that managers with MBA’s have more volatile
portfolios.
In a related paper, Fortin and Michelson (2006) examine the earnings forecast accuracy
of financial analysts who have earned the CFA designation. They argue that CFA holders are
expected to provide more accurate forecasts for two reasons. First, the CFA curriculum over a
three year period provides the necessary investment valuation portfolio management tools and
concepts. Second, CFA holders are expected to abide by the Code of Ethics and Standards of
Professional Conduct. Using Thomson Financial I/B/E/S data, they find empirical evidence to
support their contention. They find that CFA holders, on average, provide “tighter” forecast
accuracy than non CFA holders.
What appears to be missing from the current literature is a study that directly compares
the CFA, MBA and Experience, while controlling for risk and style factors. This study does just
that. In addition, we use several different return and risk metrics. Further, while some studies
have noted an impact on risk, none have directly measured it – we model the impact of these
variables on risk. To compare our results with previous studies, we examine performance using
unadjusted returns, and market risk-adjusted Jensen (1968) alphas. To capture a more complete
risk model, we then use the Carhart (1997) 4-factor models. We also control for portfolio size
and style targets employed by the managers. Moreover, since it appears that investment
experience might also play a role, we examine job tenure as well. Specifically, we compare in a
risk and style controlled model, the relative and marginal performance benefits of three different
educational methods – CFA, MBA, and Experience.
Data and Empirical Methodology

Data
We use the PSN Database, a unique dataset which contains quantitative and qualitative
information on over 11,000 independent equity and fixed income portfolios privately managed
by 2000+ companies. The manager of each of the portfolios fills out a lengthy questionnaire, and
PSN collects this information into a flexible and searchable database. This data is marketed to
investment professionals, primarily Pension Plan Sponsors, Endowments, Foundations and
corporate and institutional money managers who use it as a tool to identify and select investment
managers. Managers have a strong economic incentive to be complete and accurate in their
reporting, since PSN is the only database widely used by institutions to identify funds for their
clients.
Our sample is limited to those portfolios where we have CFA and MBA data, that are
AIMR compliant, and which have at least 12 months of returns data over the study period, 2005-
2007.1 We eliminate funds where the fund family has less than $100 million in assets under
management (AUM), and individual portfolios with less than $1 million. In our final sample of
890 funds, over 700 list more than one manager. For each fund, there is a Primary manager,
what PSN calls the Key Portfolio Manager (KPM), and as many as nine other managers, though
the maximum observed in our sample is six.
For each manager, there is information on age, professional designation, graduate degree,
etc. In some cases, the professional designation column was blank but the manager's name
included 'CFA' -- in such cases, we considered that manager to be a CFA. For graduate degree,
often the listing was unambiguously 'MBA'. However, sometimes it was entered as 'Master', and
sometimes as 'Master-Finance' -- in the latter case, we considered that manager as an MBA, in
the former we did not.2 Of the funds in our sample, 356 of the Key Portfolio Managers (KPM)
have the CFA designation, 253 have an MBA degree, and 159 have both. Among all of the

1
We identified managers as of 2006. As Fabozzi, et al (2008) note, average manager tenure is 3 years, so we start
one year before, and go one year after. This allows us to be reasonably confident that the majority of these funds
were managed by these managers during that period
2
In the few cases when graduate degree listed PHD, it rarely indicated a major. For this reason, we do not consider
PHD.
portfolios, 408 have at least one CFA on the team and 309 had at least one MBA. The average
job tenure for KPMs is 12.16 years.
(Place Table 1 about here)

For the portfolios, in our sample average Active return (portfolio return in excess of the
benchmark) is 2.9 basis points, average outperformance of the SP500 is 6.1 bps, and
performance measured by the Carhart alpha is -8.2 bps. Average TE is 1.34, and IR is 0.6 bps.
If we split the sample by size into thirds, we don’t see much difference, except for IR – the
smallest funds have IR of -0.5 bps, while the largest group have IR = 1.6 bps.
In terms of style, we have data on what the fund managers identify as important. For

example, if the manager says that growth is important to their fund i, then our dummy Groi = 1
(it is possible for a fund to have more than one of these dummies = 1). About 38% of our funds
are Growth, 31% are Value, and 20% are Core (balanced between Growth and Value). About
12% are some other characteristic (PSN has about 25 total possible style characteristics). Again,
considering fund size does not reveal any consistent differences.

(Place Table 2 about here)

One of the issues in fund analysis that is well-known to practitioners but often overlooked
by academics, is that managers use different benchmarks and managers change benchmarks. We
note each year (in quarter 4) what benchmark a fund uses; if we have no benchmark reported,
that fund is not considered (rather than assume SP500, tbill, etc). In our sample, there are 32
different benchmarks used by funds at some point during our examination period; about 8% of
funds changed their benchmark during that time. The S&P 500, Russell 1000 Growth and
Russell 1000 value are the most commonly used benchmarks, at 21.6%, 14.5% and 11.4%,
respectively.

(Place Table 3 about here)

Empirical Methodology
The previous literature has examined the impact of manager qualifications on fund
performance both in terms of raw returns as well as on a risk-adjusted basis using the CAPM
model. In this paper, we consider other risk adjustment models, and in addition control for fund
size and management styles. In order to examine the marginal performance of individual fund
managers that is due to the type of education, we use a two stage procedure. First, we estimate
portfolio out-performance in 3 ways: raw (un-risk-adjusted) Active return, the original Jensen
(1968) alpha, and alpha from the Carhart 4-factor model (1997) as follows3:

(1) (
ActiveRet i = mean Ri ,t − RBi ,t
t
)
(2) Ri = α Jensen ,i + β1 RSP 500 + ε i

(3) Ri = α Carhart ,i + β1 RSP 500 + β 2 SMB + β 3 HML + β 4 MOM + ε i

where:
Ri = return for fund i, in excess of fees and the 90 day US Tbill rate,
RSP 500 = return on the S&P500, in excess of the 90 day US Tbill rate,

RBi ,t = return on fund i’s benchmark in year t, in excess of the 90 day US Tbill rate,
and SMB, HML and MOM are the Fama-French and Carhart factors.

In a second stage regression, we use these Active returns and alphas in a cross-sectional
dummy variable regression with control variables to estimate the marginal contribution of the
various factors to performance. We define dummy variables for each of our potential
classifications as:

CFA = 1 if the KPM has a CFA

MBA = 1 if the KPM has an MBA
CFAonly = 1 if the KPM has a CFA, but not an MBA
MBAonly = 1 if the KPM has an MBA, but not an CFA
MBACFA = 1 if the KPM has both a CFA and an MBA
AnyCFA = 1 if at least one manager on the portfolio team has a CFA
AnyMBA = 1 if at least one manager on the portfolio team has a MBA
KPMten = years the KPM has been on the job

3
We also examined alphas from the Fama French 3-factor model (1993), with qualitatively the same results as the
Carhart alphas
 However, a regression based on these and one of the above alphas does not take into
consideration the fact that different types of managers have different objectives and styles.
Similarly, Berk and Green (2004) and others have suggested a strong link between portfolio size
and performance. We add control variables as: log(fund size), and 3 more dummy variables for
the style target of the fund; Growth, Value and Core (there are several other potential targets
identified by PSN, making up the "other" group of regressions).
Thus, the regression for the type of education for the Key Portfolio Manager takes the
following form:

α i = γ 0 + β1Groi + β 2Vali + β3Cori + β 4 ln( Sizei ) + β5 CFAi +

(4) β 6 MBAi + β 7 KPMteni + ε i

To account for the overlap between CFAs and MBAs, we also consider the unique
classifications of CFAonly, MBAonly, and MBA&CFA:

α i = γ 0 + β1Groi + β 2Vali + β 3Cori + β 4 ln( Sizei ) + β 5 CFAonlyi +

(5)
β 6 MBAonlyi + β 7 MBACFAi + β8 KPMteni + ε i

To determine if there is an influence of CFA or MBA from having at least one of these on
the team, we estimate:

α i = γ 0 + β1Groi + β 2Vali + β 3Cori + β 4 ln( Sizei ) + β5 AnyCFAi +

(6)
β 6 AnyMBAi + ε i

Another important aspect in the management of investment portfolios is controlling risk.

One way to measure risk is through market beta and thus, similar to our return equations, we
directly model risk to determine the marginal contribution of the educational methods:

Jenβi = γ 0 + β1Groi + β 2Vali + β 3Cori + β 4 ln( Sizei ) + β 5 CFAi +

(7)
β 6 MBAi + β 7 KPMteni + ε i

where JenB is the beta from Jensen’s alpha model, resulting from equation (2).

As with the return equations, we will do this both with the general CFA/MBA
categorizations, and the CFAonly, MBAonly, and MBA&CFA classifications.
 For the “any manager on the team” effect we estimate:

Jenβ i = γ 0 + β1Groi + β 2Vali + β3Cori + β 4 ln( Sizei ) + β 5 AnyCFAi +

(8)
β 6 AnyMBAi + ε i

Another common metric in the industry to assess portfolio risk is through estimating the
portfolios’ tracking error (TE). Although there are some competing definitions, the most widely
used measure is the standard deviation of the difference between returns of the portfolio and the
portfolio’s benchmark4:

di ,t = Ri ,t − RBi ,t ,t
TEi = std ( d i ,t )
(9)

It is clear that a fund matching the benchmark exactly will have a TE=0, and the farther
away the fund is from the benchmark the higher the TE. It is also obvious that for a manager to
outperform the benchmark, he/she must have a non-zero tracking error. We use equations
similar to (7) and (8) above, using TE as the risk metric, to model the impact education method
has on risk.

Empirical Findings

Before getting into the education variables, since we will compare results with and
without control variables, it may be instructive to examine the impact of those control variables
alone, for our specific data sample. Not surprisingly, as we move from the simplest models to
the more complete models, the impact of the fund characteristics tends to diminish. What seems
to be surprising however, are the R-squared values. At first glance, these R-squares may seem
low, but one must remember that these are cross-sectional regressions and that the left-hand side
variables are regression intercepts, after the underlying risk model has been already estimated in
a time series regression. The average R-squares from the time series regressions which

4
For each fund and each year, we determine what benchmark the fund reports using. About 8% of the funds
changed their benchmark during our sample period. See Table 3 for details.
estimated the alphas are much higher; 99% were above 0.30, with the average R-squares for the
Jensen, Fama-French, and Carhart models being 0.71, 0.73 and 0.74 respectively.
(Place Table 4 about here)

Impact of Education Level on Returns

We begin with the simplest model and run a regression of raw Active return on
MBAonly, CFAonly. This reveals a positive impact for the MBA on return, both with and
without model controls. This result is similar to the findings in some previous studies. However,
once we add a more complete risk model, all such significant results vanish. Whether using the
single-factor market model, or the 3-factor Fama-French model, or the 4-factor Carhart model,
the impact from an MBA or CFA is not significant
(Place Table 5 about here)

Instead of considering managers who only have a CFA or only have an MBA
(eliminating those who have both), we simply designate CFA or MBA (as some studies have
done), and regress our return measures on those. In these regressions, we find that neither add
value, in raw returns or any of the risk-adjusted returns. This already gives some insight into
why studies have had conflicting results, there are many ways of slicing the pie, and the answers
are dependent on the method.
(Place Table 6 about here)

A more complete way of ‘slicing the pie’ with respect to identifying managers is to
consider those who only have a CFA or an MBA, as well as those who have both (compared
against those who have neither), and include the experience of the Key Portfolio Manager. The
conclusion with this set of variables is not much changed; an MBA who does not have a CFA
seems to add value (relative to the other managers) for raw Active return, but not for risk-
adjusted. There is no significant difference added by CFA or experience.
(Place Table 7 about here)

Since most portfolios are managed by teams of managers, it is possible that any manager
on the team having a particular education might help the portfolio. Similar to Shukla and Singh
(1994), we consider the instance of any manager on the team having an MBA or CFA, by
regressing the above return measures on AnyMBA and AnyCFA. As before, for raw Active
returns, having an MBA on the team is significant only at the 15% level, but for any risk-
adjusted return, there is no significant impact.
(Place Table 8 about here)

Summarizing the return estimations, what we have so far is that the type of education or
experience a manager has does not have much impact on return. Further, what little impact there
is seems to be dependent on exactly how we measure performance and how we categorize
managers. This might help explain why results from previous studies have been mixed.

Impact of education method on risk

Although it is not as eye catching as raking in big returns, we all know that controlling
risk is just as important as generating positive returns. While some of the above return measures
are risk-adjusted, they do not specifically model portfolio risk. Academics and practitioners alike
use portfolio beta as a measure of risk. In addition, practitioners more commonly use Tracking
Error. To determine if there is a relationship between education methods and portfolio risk, we
model each of these risk measures in a manner similar to the return equations above.
As before, we begin with a simple model and then go directly to the market beta
regression against MBA, CFA and Experience. This shows that MBA’s seem to add risk but not
quite significantly, CFA’s are shown to neither add nor decrease risk, and Experience is found to
significantly reduce risk. Once we add control variables to the model, the story is the same, but
now we find significance for the result that MBA’s tend to increase portfolio risk. Using
Tracking Error as the risk measure, we find that MBA’s significantly add risk, but that CFA’s
and Experience significantly reduce risk (both with and without the control variables).

(Place Table 9 about here)

When we consider the classifications of Experience and managers with only an MBA or
CFA, and those with both MBA & CFA, we get results basically consistent with the previous.
CFA’s reduce risk as measured by TE, MBA’s add risk as beta, and Experience reduces risk as
beta.
(Place Table 10 about here)
 For the case of any MBA or CFA on the team, an MBA significantly increases risk (TE
and beta) and a CFA decreases risk as measured by TE (both with and without model control
variables).
(Place Table 11 about here)

Summary and Conclusions

This study has used several different methods of measuring portfolio return, and various
methods of measuring influence of MBA or CFA or Experience on a portfolio. What we have
consistently found is that none unambiguously adds value, relative to the other managers.
For risk, the result is even more consistent. Using two different measures of risk, we find
that in general manager Experience reduces risk. Between CFA’s and MBA’s, CFA’s
consistently have lower risk portfolios. By some measures or models, CFA’s significantly
reduce risk while MBA’s “do no harm”; by other measures or models, the MBA’s significantly
add risk, while CFA’s do not; in others, the CFA’s significantly reduce and MBA’s significantly
add risk. In all cases, the impact on portfolio risk due to CFA’s is significantly less than the
MBA’s.
The impact of education method on the portfolio’s risk is potentially a very interesting
result. It suggests that business schools are teaching MBA’s to enhance risk. The reason for this
is not immediately obvious, but a compelling possibility is that managers, knowing that the
distribution of year-end bonuses is asymmetrical, intentionally increase risk to improve the odds
of a big bonus. Although MBA’s and CFA’s learn the same material, from the same books (and
often from the same teachers), with the high ethical standards that are embodied in the CFA
designation, perhaps they are less likely to take the path of maximizing bonus without respect for
the portfolio investors.
References

Berk, J. and R. Green, (2004), “Mutual funds flow and performance in rational markets”, Journal
of Political Economics,112, 1269-1295.

Boyson (2002). “How are Hedge Fund Manager Characteristics Related to Performance,
Volatility, and Survival?” (SSRN).

Carhart, M. (1997). “On persistence in mutual fund performance”, Journal of Finance 52, 57-82.

Chevalier and Ellison (1999). "Are some Mutual Fund Managers better than others? Cross-
sectional patterns of behaviour and performance", Journal of Finance, June 1999.

Fabozzi, J.,Frank., Sergio M. Focardi, and Caroline Jonas. (2008) Research Foundation of CFA
Institute Publications, Challenges in Quantitative Equity Management: 1-110.

Fama, E. and K. French (1993). "Common Risk Factors in the Returns on Stocks and Bonds,"
Journal of Financial Economics, 33 (1) 3-56.

Fortin, R, and S. Michelson (2006). “The Earnings Forecast Accuracy of Financial Analysts
Who are CFA Charterholders”, Journal of Investing, Vol. 15, No. 3.

Golec (1996) “The Effects of Mutual Fund Managers' Characteristics on their Portfolio
Performance, Risk and Fees”. Financial Services Review, 5(2), pp. 133-148.).

Gottesman and Morey (2006) "Manager education and mutual fund performance" Journal of
Empirical Finance, 13, pp. 145-182.

Jensen, M. C. (1968). “The performance of mutual funds in the period 1945-1964”, Journal of
Finance 23, 389-416.

Shukla and Singh (1994) "Are CFA charterholders better equity fund managers?" Financial
Analysts Journal, 6, pp.68-74.

Switzer and Huang (2007) "Management characteristics and the performance of small & mid-cap
mutual funds" (SSRN).

Wright, C. (2010) “Clearing the Bar: Are CFA charterholders superior performers?” CFA
Magazine, Jan/Feb 2010, pp. 22-25.
 Table 1: Descriptive statistics about the managers

Panel A: about the team and Key portfolio managers CFA or MBA designations
Size Size ($mill) MBAs CFAs MBAonly CFAonly MBA&CFA AnyCFA AnyMBA
Tertile Mean
1 61.6 26.7% 39.9% 7.4% 20.6% 19.3% 45.3% 31.8%
2 385.9 28.7% 40.2% 12.2% 23.7% 16.6% 47.5% 35.6%
3 2978.8 30.1% 39.9% 12.2% 22.0% 17.9% 44.9% 37.2%
ALL 1143 28.4% 40.0% 10.6% 22.2% 17.9% 45.8% 34.7%

Panel B: Other descriptive statistics about the Key portfolio managers

Tenure % of
Size (years) Age sample
Tertile Mean Male
1 10.4 51.4 88.4%
2 12.3 52.1 87.5%
3 13.6 52.6 87.3%
ALL 12.2 52 87.8%
 Table 2: Descriptive Statistics on Portfolios

Panel A: return measures (all in %)

Market
Size Active Ret Excess Ret Outperformance
(over (over Jen
Tertile Bench) Tbills) (over SP500) Alpha FFalpha Car alpha
1 0.037 0.441 0.062 0.006 -0.123 -0.096
2 0.045 0.431 0.062 0.002 -0.123 -0.088
3 0.032 0.425 0.06 0.017 -0.078 -0.063
ALL 0.029 0.431 0.061 0.008 -0.108 -0.082

Panel B: risk and performance measures

Size
Tertile TE Beta Sharpe IR
1 1.51 1.14 0.143 -0.005
2 1.33 1.17 0.137 0.008
3 1.18 1.12 0.148 0.016
ALL 1.34 1.14 0.142 0.006

Panel C: Style characteristics

Size
Tertile Gro Val Cor
1 39.50% 28.40% 16.90%
2 36.40% 28.20% 25.20%
3 38.20% 36.10% 17.20%
ALL 38.20% 30.90% 19.70%
 Table 3: Descriptive statistics about Benchmarks used

Num of 'Fund Years'

Benchmark* Fund Years' in %
(out of total 2656)

90 Day U.S. TBill 22 0.8

DJ/Wilshire REIT 12 0.5
Domini 400 3 0.1
ML All US CNVRT 12 0.5
MSCI US REIT 6 0.2
MSCI USA 5 0.2
MSCI World 3 0.1
NAREIT 15 0.6
NASDAQ 8 0.3
RUS 1000 42 1.6
RUS 1000 Growth 385 14.5
RUS 1000 Value 302 11.4
RUS 2000 195 7.3
RUS 2000 Growth 247 9.3
RUS 2000 Value 149 5.6
RUS 2500 22 0.8
RUS 2500 Growth 43 1.6
RUS 2500 Value 37 1.4
RUS 3000 62 2.3
RUS 3000 Growth 56 2.1
RUS 3000 Value 39 1.5
RUS Mid Cap 49 1.8
RUS Mid Growth 170 6.4
RUS Mid Value 113 4.3
RUS Top 200 GR 5 0.2
S&P 400 Mid Cap 50 1.9
S&P 500 573 21.6
S&P 500 Growth 2 0.1
S&P 500 Value 6 0.2
S&P 600 Small Cap 17 0.6
S&P 600 Small Value 1 0
WILSHIRE 5000 5 0.2
*8.1% of Funds changed Benchmarks during 2005-2007.
 Table 4: Impact of control variables on performance models

over
Excess Active SP500 Jensen FamaFrench Carhart

Constant 0.42 0.031 0.029 0.006 -0.131 -0.101

-8.68 -0.72 -0.61 -0.14 (-2.83) (-2.32)

Growth 0.132 0.095 0.144 0.042 -0.057 -0.043

-3.31 -2.57 -3.63 -1.13 (-1.53) (-1.2)

Value 0.005 0.002 0.016 -0.017 -0.023 0.009

-0.13 -0.04 -0.43 (-0.48) (-0.62) -0.27

Core -0.034 -0.012 -0.019 -0.047 -0.075 -0.053

(-0.82) (-0.33) (-0.5) (-1.27) (-1.93) (-1.43)

Log(Size) -0.006 -0.005 -0.004 0 0.012 0.007

(-0.91) (-0.83) (-0.68) -0.02 -1.83 -1.25

R-square 0.04 0.02 0.05 0.01 0.01 0.01

Observations 886 886 886 872 872 872

 Table 5. Return metrics: CFAonly, MBAonly
 

Active Jensen Carhart Active Jensen Carhart

Return α α Return α α

CFAonly 0.022 0.031 0.018 0.011 0.025 0.027

(0.92) (1.23) (0.73) (0.44) (1.00) (1.04)
MBAonly 0.067 0.027 0.017 0.069 0.026 0.010
(1.77)* (0.73) (0.48) (1.88)* (0.73) (0.29)
Growth 0.095 0.041 -0.044
(2.59)*** (1.11) (-1.23)
Value -0.000 -0.015 0.012
(-0.02) (-0.42) (0.35)
Core -0.011 -0.047 -0.053
(-0.92) (-1.26) (-1.43)
Ln Size -0.005 -0.000 0.007
(-0.92) (-0.05) (1.19)
Constant 0.026 -0.001 -0.088 0.026 0.000 -0.106
(2.03)** (-0.07) (-6.99)*** (0.58) (0.00) (-2.41)**
Observations 890 874 874 886 872 872
R-squared 0.00 0.00 0.00 0.03 0.01 0.01
Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
 
 Table 6: Return metrics: CFA, MBA

Active Jensen Carhart Active Jensen Carhart

Return α α Return α α

CFA -0.004 0.020 0.015 -0.012 0.017 0.021

(-0.18) (0.91) (0.69) (-0.56) (0.74) (0.93)
MBA 0.021 0.005 0.008 0.029 0.008 -0.002
(0.83) (0.19) (0.32) (1.12) (0.33) (-0.07)
Growth 0.095 0.042 -0.044
(2.59)*** (1.11) (-1.23)
Value -0.003 -0.018 0.010
(-0.09) (-0.49) (0.30)
Core -0.011 -0.047 -0.053
(-0.31) (-1.27) (-1.43)
Ln Size -0.005 0.000 0.007
(-0.83) (0.01) (1.23)
Constant 0.033 -0.000 -0.090 0.029 -0.002 -0.108
(2.40)** (-0.06) (-6.70)*** (0.66) (-0.04) (-2.45)**
Observations 890 874 874 886 872 872
R-squared 0.00 0.00 0.00 0.03 0.01 0.01
Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
 Table 7: Return metrics: CFA only, MBA only, Both, and Experience

Active Jensen Carhart Active Jensen Carhart

Return α α Return α α

CFAonly 0.032 0.039 0.029 0.017 0.030 0.034

(1.23) (1.48) (1.12) (0.66) (1.11) (1.28)
MBAonly 0.071 0.021 0.021 0.071 0.020 0.014
(1.83)* (0.58) (0.57) (1.90)* (0.56) (0.37)
CFA&MBA 0.022 0.035 0.044 0.024 0.036 0.039
(0.70) (1.11) (1.42) (0.74) (1.13) (1.24)
KPM Tenure -0.002 -0.002 -0.002 -0.002 -0.002 -0.002
(-1.31) (-1.44) (-1.12) (-1.22) (-1.60) (-1.46)
Growth 0.089 0.039 -0.049
(2.39)** (1.05) (-1.38)
Value -0.016 -0.027 -0.009
(-0.43) (-0.99) (-0.28)
Core -0.033 -0.076 -0.083
(-0.91) (-2.04) (-2.25)**
Ln Size -0.001 0.004 0.104
(-0.18) (0.66) (1.66)*
Constant 0.035 0.013 -0.081 0.023 0.008 -0.096
(1.49) (0.55) (-3.37)*** (0.50) (0.15) (-2.03)**
Observations 798 783 783 794 781 781
R-squared 0.01 0.01 0.01 0.04 0.03 0.02
Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
 Table 8: Return metrics: Any CFA or MBA

Active Jensen Carhart Active Jensen Carhart

Return α α Return α α

Any CFA -0.016 -0.006 -0.006 -0.025 -0.009 0.001

(-0.73) (-0.26) (-0.29) (-1.13) (-0.41) (-0.03)
Any MBA 0.034 0.015 0.015 0.040 0.018 0.006
(1.39) (0.63) (0.62) (1.65)* (0.72) (0.26)
Growth 0.096 0.043 -0.043
(2.61)*** (1.14) (-1.21)
Value -0.002 -0.019 0.009
(-0.07) (-0.53) (0.25)
Core -0.010 -0.046 -0.052
(-0.28) (-1.25) (-1.43)
Ln Size -0.005 -0.000 0.007
(-0.90) (-0.00) (1.23)
Constant 0.034 0.006 -0.084 0.032 0.006 -0.102
(2.32)** (0.44) (-6.10)*** (0.71) (0.12) (-2.28)
Observations 890 874 874 886 872 872
R-squared 0.00 0.00 0.00 0.03 0.01 0.01
Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
 Table 9: Risk metrics: CFA, MBA, and Experience

TE Jensen β TE Jensen β

CFA -0.122 -0.007 -0.142 -0.024

(-2.72)*** (-0.33) (-3.32)*** (-1.23)
MBA 0.107 0.035 0.129 0.052
(2.20)** (1.58) (2.85)*** (2.50)**
KPM Tenure 0.001 -0.003 0.004 -0.003
(0.38) (-2.16)** (1.62) (-2.08)**
Growth 0.303 0.255
(4.21)*** (6.12)***
Value 0.005 0.061
(0.08) (1.53)
Core -0.202 0.083
(-3.15)*** (1.95)*
Ln Size -0.081 -0.004
(-6.20)*** (-0.79)
Constant 1.335 1.161 1.689 1.054
(27.89)*** (55.25)*** (18.16)*** (21.90)***
Observations 798 783 794 781
R-squared 0.01 0.01 0.15 0.13
Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
 Table 10: Risk metrics: CFA only, MBA only, Both, and Experience

TE Jensen β TE Jensen β

CFAonly -0.137 0.019 -0.167 -0.007

(-2.58)*** (0.78) (-3.22)*** (-0.29)
MBAonly 0.079 0.079 0.089 0.081
(1.04) (2.30)** (1.26) (2.53)**
CFA & MBA -0.007 0.015 -0.002 0.019
(-0.12) (0.59) (-0.03) (0.41)
KPM Tenure 0.001 -0.003 0.004 -0.003
(0.39) (-2.20) (1.63) (-2.08)**
Growth 0.305 0.253
(4.21)*** (6.08)***
Value 0.003 0.062
(0.05) (1.57)
Core -0.202 0.083
(03.14)*** (1.95)*
Ln Size -0.081 -0.004
(-6.21)*** (-0.86)
Constant 1.339 1.153 1.694 1.1050
(27.41)*** (53.68)*** (18.11) (21.84)***
Observations 798 783 794 781
R-squared 0.01 0.01 0.15 0.13
Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
 Table 11: Risk metrics: Any CFA or MBA

TE Jensen β TE Jensen β

Any CFA -0.127 0.000 -0.166 -0.017

(-2.83)*** (0.03) (-3.85)*** (-0.86)
Any MBA 0.159 0.041 0.191 0.056
(3.32)*** (1.92)* (4.28)*** (2.72)***
Growth 0.338 0.272
(4.80)*** (6.72)***
Value -0.017 0.066
(-0.26) (1.71)*
Core -0.213 0.090
(-3.43)*** (2.18)**
Ln Size -0.091 -0.011
(-6.54)*** (-2.27)**
Constant 1.342 1.128 1.789 1.052
(39.62)*** (80.97) (18.48)*** (21.83)***
Observations 890 874 886 872
R-squared 0.01 0.01 0.18 0.15
Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%