The Performance of the Italian Mutual Funds : Does the Metric Matter?

The Italian mutual fund industry is in a severe crisis: its net assets have been experiencing a constant decrease since 1999, from 42% of GDP to 8% in 2011. Its returns are poor, too. An investment in mutual funds has accumulated in its 28-year life a loss larger than the initial asset value, if compared with an investment in the one-year treasury bonds; Mediobanca (2012) estimates a destruction of value generated by the former over the last ten years of about 90 billion Euros, that would be even larger considering the risk premium on the portion of funds invested in equity.However, there is a debate about the metrics to be used for measuring returns. Based on an original dataset of the Italian open mutual funds, never used before by any scholar, we simulate the dynamics of returns and cash-flows in the period 2003-2010, and analyze the spread among different metrics, arguing on their appropriateness for evaluating performance from different perspectives and taking into consideration the specific features of the Italian fund industry