Unit Trusts' Performance: Does the Yardstick Matter?

Although researchers in the United States report that mutual funds fail to outperform simple buy-and-hold investment strategies, South African studies have found that unit trust shares do outperform the market. This study employs the Arbitrage Pricing Theory model in order to assess the performance of twenty-five unit trusts during the four-year period from February 1988 to March 1992. Two single-factor models, two three-factor models and two five-factor models are developed, along with an improved version of the market model using a zero-beta portfolio. The evidence suggests that while unit trusts seem to have outperformed a buy-and-hold strategy when measured within the framework of a single-factor model, these conclusions are totally unfounded when the performance measures are derived in a multi-factor environment.