Determinants of Morningstar-Rating for Thai Large Equity Funds

Abstract

The objective of this study is to analyze the returns and volatilities of large cap equity funds by operational efficiency measurements such as Sharpe Ratio, Treynor Ratio, Jensen’s Alpha, Information Ratio and Value at Risk (VaR). Then, factors affecting the Morningstar Rating for mutual funds are determined. Only funds aged 5 or older up to the present will be considered. It is found that there is a total of 176 large equity funds from Morningstar Thailand. Data used in this study are monthly secondary data of net asset value (NAV) per unit of each fund from January 2015 to December 2019, totaling 60 data.

The study results show that large cap equity funds have an average return of 3.5384 percent per month. The fund with the highest average return per month is TSF with the average monthly return of 8.9486 percent. The fund with the lowest average return per month is KTSE-RMF with the average monthly return of -1.2916 percent. The volatility of large cap equity funds averages 3.0858 percent per month. The fund with the highest monthly fluctuation is PRINCIPAL DEF with the monthly fluctuation of 5.2555 percent. The fund with the lowest monthly fluctuation is KFLTFD70 with the monthly fluctuation of 2.0195 percent. Results of operational efficiency of large cap equity funds by various measurements are as follows. Funds with the highest and lowest Sharpe ratio are BTP and T-EQUITY, respectively. Funds with the highest and lowest Treynor ratio are BKIND and T-EQUITY, respectively. Funds with the highest and lowest Jensen’s Alpha are TSF and KTSE-RMF, respectively. Funds with the highest and lowest Information ratio are K-STAR-A(R) and T-EQUITY, respectively. And, funds with the highest and lowest VaR at 95% confidence level are TISCOEDF and T-LOWBETA, respectively. Analysis for factors affect the Morningstar Rating for large cap equity funds shows that 3 independent variables that can explain the star rating significantly at 0.05 level are Sharpe ratio, Return and Standard Deviation.