Historically the German mutual fund sector was dominated by bond funds.  During the last five years however this situation has been changing rapidly, and equity funds are more popular than ever.  This encourages us to examine German equity mutual fund performance in more detail, using a new measure, the LIFE-index.  The index takes into account both risk-adjusted return and the level of diversification.  This increases the efficiency of our analysis relative to, for instance, the Jensen's alpha.  Our aggregate performance results do not provide evidence of German fund managers being able to "beat the market" significantly.  The (relative) individual fund results however reveal much more information as funds exhibit a wide variety of performance results, which makes the existence of rankings, like the one based on the LIFE-Index, of great importance.  Finally persistence tests show that our index produces consistent rankings, which enable investors to select funds that suit their preferences best.

The LIFE Index: A New Approach to Rank Mutual Funds Evidence for Germany