The relationship between australian mutual fund fees and risk-adjusted performance in differing economic conditions

We find that Australian mutual fund investors should avoid high fee funds as these funds generate relatively low after-fee risk-adjusted returns both unconditionally and in weak economic conditions. This result is different from some of the previous findings which showed that US mutual funds with relatively high expense ratios may generate relatively higher risk-adjusted returns during recessions relative to non-recessions, although their unconditional alphas may be negative. We find some support for the Glode hypothesis in surviving Australian wholesale funds. High-fee surviving Australian wholesale funds perform relatively strongly in both weak economic conditions and unconditionally. High-fee funds in other types of Australian mutual funds generally do not perform strongly either in weak economic conditions or unconditionally. Amongst low-fee funds, we commonly find that those that perform well unconditionally and well in weak economic conditions do charge more than those that perform well unconditionally and poorly in weak economic conditions. Amongst low-fee funds, it is often true that those that perform poorly unconditionally but well in weak economic conditions can charge more than those that perform poorly unconditionally and poorly in weak economic conditions. Australian Economic Paper