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Capacity effects and winner fund performance: the relevance and interactions of fund size and family characteristics
Authors:Wolfgang Bessler  Philipp Kurmann  Peter Lückoff
Institution:1. Center for Finance and Banking, Justus-Liebig-University Giessen, Licher Strasse 74, 35394 Giessen, Germany;2. The Boston Consulting Group, Bockenheimer Landstr. 47, 60325 Frankfurt/Main, Germany
Abstract:This study analyzes the existence of capacity effects and performance persistence for US equity mutual funds for the period from 1992 to 2007. We focus on winner funds and distinguish between capacity effects from both size and inflows and explore their interactions with two measures of family size, i.e. family total net assets under management (family TNA) and the number of funds at the family level (family breadth). The differentiation of family size allows us to analyze competing effects at the family level such as economies of scale as well as organizational complexity costs and conflicts of interest. Our empirical results confirm diseconomies of scale at the winner fund level and indicate that only small winner funds with low inflows significantly outperform the four-factor benchmark on a net return basis. There are no universal benefits from economies of scale at the family level, but our findings suggest the existence of conflicts of interest in families offering a relatively large number of funds. Small winner funds in families offering a small number of funds significantly outperform while economies of scale only materialize among extremely small winner funds. We provide detailed robustness checks for our empirical results. Overall, simply conditioning on fund size is not sufficient for selecting future outperforming funds. The results indicate that fund investors may earn positive abnormal returns when combining information on fund size with information on fund flows or fund family affiliations in their asset allocation decisions.
Keywords:performance persistence  fund size  diseconomies of scale  family effects
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