Are higher fees justified by superior performance ? Evidence from Belgian mutual funds

Abstract

In this study, I use a data sample consisting of open-end equity mutual funds from the Belgian mutual fund market over the period 2005-2015. Previous literature found mainly that fund performance is negatively related to the expense ratio and positively related to total fund assets. My findings confirm that there is a statistically significant negative relationship between performance and expenses, indicating inefficient use of resources. In addition, I determine a significant positive relation between performance and total assets. This results suggests economies of scales in larger funds. Furthermore, I find that mutual funds generally underperform the market. Moreover, I do not find any correlation between age, front loads, rear loads and performance. In conclusion, investors are better off buying funds with lower expense ratios.