The effect of investor service costs on mutual fund performance |
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| Authors: | George J Jiang Tong Yao Gulnara R Zaynutdinova |
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| Institution: | 1. Department of Finance and Management Science, Carson College of Business, Washington State University, Pullman, Washington, USA;2. Department of Finance, Tippie College of Business, The University of Iowa, Iowa City, Iowa, USA;3. Department of Finance, John Chambers College of Business and Economics, West Virginia University, Morgantown, West Virginia, USA |
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| Abstract: | We examine the effect of investor service costs on mutual fund performance. Benchmarking passive funds against ETFs managed by the same fund company with the same investment objectives, we show that passive funds on average underperform ETFs by 42 bps in annualized net returns, of which about 90% can be attributed to investor service costs. Further benchmarking active funds against passive funds, we show that active funds on average outperform passive funds by 31 bps in annualized gross returns. However, the higher expense ratios charged by active funds lead to about 28 bps of underperformance in annualized net fund returns. |
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| Keywords: | ETFs investor service costs mutual fund performance |
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