I would like to compare a set of homogeneous mutual funds. By homogeneous I mean mutual funds that have a similar investment strategy.
Unfortunately, I cannot find a good paper where homogeneous funds are compared with each other, so that I do not know if there is a generally accepted method to measure for homogeneity.
I was thinking about looking at the tracking error of a specific period of time and group funds based on their tracking error.
Another method would be looking at R² of a regression including the fund's return as DV and the benchmark return as IV.
I would appreciate any advice!
Dear Valentin
For mutual funds that are actively managed (i.e. not passive stock index funds) you will have a challenge constructing an appropriate benchmark to compare the return distribution. Further, mutual funds typically describe an investment strategy that they purport to follow and then do not follow the strategy. That is, the fund managers portray the investment strategy to appeal to investors to invest with attractive words like high growth, and value stocks.
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