International Mutual Funds: MSCI Benchmarks and Portfolio Evaluation

We examine the sensitivity of estimates of abnormal performance to models that vary in the degree to which they explicitly control for variation in the regional and emerging market allocations of diversified international mutual funds. Models based on the most commonly used global MSCI benchmarks indicate that the funds have average positive abnormal performance. This positive performance is driven by funds with the greatest emerging markets and Pacific region exposure. When we measure performance against a model which includes MSCI benchmarks for the U.S, Europe, Pacific region, and Emerging Markets, average fund performance turns negative and significant.