Studies On Style Drift Of Open-end Security Funds

After experienced a more than 10 years’ fast development, China’s open-end fund industry has a leap of improvement both from the "quality" and "quantity". Faced with dazzling array of fund products, most ordinary investors tend to understand the funds thought their recruiting descriptions which demonstrate their investment styles and investment philosophies due to lack of investing skills. However, a large number of funds’ real investment styles do not match the nominal investment styles during the funds’ operation. This kind of situation brings a terrible problem to the ordinary investors. Therefore, studies on style drift of open-end security funds have a strong practical significance. For investors, they can understand the funds’ information more correctly to make reasonable investment options thought this study. For fund management companies, through this study they can enhance their abilities of internal governance and avoid a variety of negative influences due to investment style drift and create a good reputation. For regulators, thought this study they can launch a more comprehensive and efficient regulatory rules and policy guidance.This paper aimed to judge the investment styles of some open-end security funds of china by RBS model to test whether they have had their investment styles drifted and then analyzed the reasons. At the same time, this paper used Sharpe ratio to evaluate the performance of the sample funds and analyzed the result.This paper selected 24 open-end security funds to conduct the study which founded between January 1st,2008 and December 31st,2009. The targeted study period was from July 5th,2010 to November 30th,2012 which was divided into "bull" and "bear" two sub-sections. In the two sub-sections it respectively used the RBS model to find out whether the funds’ real investment styles were different from their nominal styles. Methods used in this paper include:qualitative analysis, quantitative analysis, comparative analysis.The main research conclusions included:firstly, the funds’ real investment styles were not very stable, the funds’ real investment styles tended to be growth-oriented when the stock market was in a rising period while the funds’ real investment styles tended to be value-based when the stock market was in a falling period; secondly, the growth-oriented funds’ performance were better when the stock market was in a rising period while the value-based funds played better when the stock market was in a falling period and the investment style drift had brought a positive effect to the funds’ performance; thirdly, the main reasons that caused investment style drift include the characteristic of china’s investors, lack of high quality investment commodities, fund managers lack investment experience.The empirical research results showed that the funds’real investment styles were not very stable. The funds’real investment styles tended to be growth-oriented when the stock market was in a rising period while the funds’real investment styles tended to be value-based when the stock market was in a falling period. Meanwhile, the investment style drift had brought a positive effect to the funds’performance.This paper gave policy recommendations from three aspects. For regulatory authorities, they must strengthen the supervision of information disclosure of fund’s investment style in the fund market as well as the punishment of default. For fund management companies, they ought to enhance their abilities of internal governance and establish long-term investment ideas and optimize the evaluation mechanism of fund manager’s performance. For investors, they ought to have a healthy mentality and establish a correct sense of risk.Compared with former studies which mostly selected funds founded before 2005 and chose the studying period before 2009, this paper selected funds founded between January 1st,2008 and December 31st,2009 and carried on the study in a new background. Therefore, this paper continued and enriched the studies on china’s style drift of open-end security funds effectively, which had a strong significance.