Replicating Mutual Funds Using Online Investment Platform

Open Access
Author:
Lindt, Dana Elizabeth
Area of Honors:
Finance
Degree:
Bachelor of Arts
Document Type:
Thesis
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • Brian Spangler Davis, Honors Advisor
Keywords:
  • finance
  • investing
  • mutual funds
  • online investing
  • returns
Abstract:
Online investing has opened up capital markets to many more investors by providing lower costs, convenience, and access to incredible amounts of information. This has created a trend among investors of taking control of their own assets and investments and cutting out the middle man. However, heavily managed mutual funds with high costs continue to attract a large number of investors. This study was created to determine if the information used to create mutual funds could be taken by the average investor and invested online at a much lower cost. The online investing platform Motif Investing was used to create “motifs” of 30 stocks that mimicked nine top performing mutual funds using their historical holdings. It was found that the mutual funds could only be replicated to represent 40%-75% of the funds’ holdings with an outlier at 98%. The motifs ended up outperforming the mutual funds in 2013 in five cases by an average of 0.6%. In 2014 six of the motifs outperformed their mutual funds by an average of 3.90%. These findings and trends have generated many additional questions to be pursued in future research.