Exchange-Traded Funds: Diversification and Management Efficiency

Exchange-traded mutual funds are responsible for asset management. Assessing their quality is particularly important in the face of high stock market volatility and growing private investor interest in exchange-traded financial instruments. This article rates fixed-coupon corporate bond exchange-traded mutual funds based on their long-term diversification and asset management efficiency, using data from seven Russian corporate bond exchange-traded funds. Moving from the concepts of exchange-traded mutual funds, diversification, and asset management efficiency, the study reviews existing approaches to assessing diversification and management efficiency, resulting in a system of metrics for a comprehensive fund assessment. The greatest impact on performance is driven not by excessive diversification per se, but by strategic alignment between the risk profile, asset selection, and management approach. However, formal diversification that does not account for the quality of assets also reduces the final performance. This methodology can be applied to other groups of funds or to analyze factors that affect efficiency and fund diversification.