Market Timing, Selectivity, and Performance of Technology Exchange-Traded Funds and Mutual Funds

Abstract

This study compares the risk-adjusted performance of technology mutual funds and exchange-traded funds with several benchmark indexes from January 2010 to July 2021. It is discovered that the average monthly returns on technology mutual funds and exchange-traded funds were highly correlated with the DJIA US Technology, NASDAQ 100 Tech, NYSE Arca Tech 100 Index, and S&P 500 Information Technology benchmark indexes. Furthermore, technology mutual funds outperformed exchange-traded funds and benchmark indexes in absolute and risk-adjusted performance. In addition, it is discovered that institutional technology funds’ risk-adjusted performance was marginally greater than noninstitutional funds’ risk-adjusted performance, and index technology mutual funds outperformed nonindex funds in risk-adjusted performance. Unconditional models indicated that technology mutual fund managers may have some market timing ability but no security selection skill. Conditional performance evaluation models indicated that fund managers do not have superior security selection techniques or the ability to time the market.