Investing made easy : Make pension investment based on one single factor

Sammanfattning: As a part of the Swedish pension system all participants in the working population are given the control of an investment account, which is funded with their pension contributions. The purpose of the account is to allow everyone the possibility to tailor their pension investments in accordance with personal values about risk and expected returns. However, it is shown that many Swedish adults lack the knowledge needed to make informed financial decisions and are therefore at risk of hurting their pension when investing in these accounts. This thesis tries to identify whether a simple but effective investment criterion, namely the size of the management fee, can increase the probability of higher risk-adjusted returns for uninformed investors when participating in the Swedish pension plan. It uses the Graham-Harvey volatility matched approach to evaluate fund performance on an individual basis. The corresponding analysis is then conducted based on grouped statistics of the projected performance measures. The results indicate stronger risk-adjusted returns of low fee funds in two out of the three analyzed categories. Carhart computations of Jensen´s alpha is then used as a robustness check and it provides support for the results found using the Grayham-Harvey method. When testing for difference in performance using the entire sample, 1.2 percent higher risk-adjusted returns were concluded statistically significant in the sample of low fee funds.