In practice, fund managers are usually constrained to invest in accordance with established fund objectives (e.g., ethical and non-ethical objectives). Evaluating the performance of mutual funds (MFs) under different fund objectives is challenged by the existential heterogeneity of the investment groups. A recent study by Qianying Jin proposes a generalized metafrontier framework for MF performance evaluation across different investment groups where heterogeneity exists. This is the first contribution that the metafrontier approach originating from the production domain is correctly and systematically applied to address the heterogeneity among the groups of MFs. This work is published in European Journal of Operational Research (EJOR), one of the top journals in the field of operations research and management science and rated as 4 star according to ABS ranking list. The abstract of the paper is provided below.

Ethical mutual funds (MFs) have grown in popularity over the past few years. However, the investors generally have concerns about their profitability compared to the investment group of non-ethical MFs. Performance comparison could be a potential way to address this concern, but the differences in their essential investment objectives raise the issue of heterogeneity between the ethical and non-ethical investment groups. Motivated by addressing this heterogeneity, this article proposes a general nonconvex metafrontier framework for comparing different investment groups of MFs. Investment groups can exhibit heterogeneity from different perspectives, such as from regulations, resource constraints, to name a few. To provide a rather complete framework for estimating the frontiers, the diversified, convex and nonconvex evaluation approaches are adapted and presented in a multi-moment setting. The proposed metafrontier framework is then applied to an empirical example where the investment groups are heterogeneous from the ethical perspective. The empirical results suggest that the ethical constraint does not necessarily lead to a worse financial performance; quite the contrary, the results provide some evidence on the outperformance of ethical MFs over the non-ethical MFs.

Figure 1. Efficient frontiers and metafrontier under the MV case

If you are interested in the research, please read the paper:

Jin, Q., Basso, A., Funari, S., Kerstens, K., & Van de Woestyne, I. 2024. Evaluating different groups of mutual funds using a metafrontier approach: Ethical vs. non-ethical funds. European Journal of Operational Research, 312(3), 1134-1145. DOI: 10.1016/j.ejor.2023.07.019

A full version of this article could be viewed at: 

https://www.sciencedirect.com/science/article/pii/S037722172300557X