Performance and diversification benefits of IPO-focused mutual funds

We investigate whether mutual funds that invest in initial public offerings (IPOs) outperform the Renaissance IPO Index, IPOX® 100 U.S. Index, and other comparable equity funds that do not invest in IPOs. We also explore whether investors gain diversification benefits by investing in IPO-focused mutual funds. Using a sample of active open-ended US equity mutual funds, we find that IPO-focused funds outperform the Renaissance IPO Index and comparable funds that do not invest in IPOs. Moreover, they provide investors with the benefit of diversification along with better returns. We also find the value added by active management based on IPO strategy.     

The performance of Japanese mutual funds

We analyze the performance of Japanese open-type stock mutualfunds for the 1981-1992 period. The results show that, regardlessof the performance measures and benchmarks employed, most ofthe Japanese mutual funds underperform the benchmarks by between3.6% and 10.8% per annum. These funds tend to invest more inlarge stocks with low book-to-market ratios. But this featuredoes not explain the underperformance. A potential explanationis the dilution effect caused by inflows of funds. In Japan,a new investor of an open-type fund only pays in the after-taxvalue of the net asset value. We conduct a bootstrap experimentto assess the magnitude of this dilution effect.     

The performance of US bond mutual funds

We evaluate the performance of the US bond mutual fund industry using a comprehensive sample of bond funds over a long time period from January 1998 to February 2017. In this one study, we examine bond fund selectivity, market timing and performance persistence. We evaluate bond funds relative to their self-declared benchmarks and in terms of both gross-of-fee returns and net-of-fee returns. We document considerable abnormal performance among funds both to the fund (gross returns) and to the investor (net returns). Bond fund performance is found to be superior in the post financial crisis period. However, past strong performance cannot be relied upon to predict future performance. Finally, while some funds exhibit market timing ability; we find a predominance of negative market timing among US bond mutual funds.     

The use of credit default swaps by bond mutual funds: Liquidity provision and counterparty risk

Corporate bond mutual funds increased their selling of credit protection in the credit default swaps (CDS) market during the 2007–2008 financial crisis. This trading activity was primarily in multi-name CDS, greater among larger and established funds, and directed toward counterparty dealers in financial distress. Funds that sold credit protection during the crisis experienced greater credit market risk and superior post-crisis performance, consistent with higher expected returns from liquidity provision. Funds using Lehman Brothers as a counterparty experienced abnormal outflows and returns of –2% immediately following Lehman's bankruptcy, suggesting that funds’ opportunistic trading in CDS exposed investors to counterparty risk.     

The performance of hedge funds and mutual funds in emerging markets

Use of short selling and derivatives is limited in most emerging markets because such instruments are not as readily available as they are in developed capital markets. These limitations raise questions about the value added provided by hedge funds, especially compared to traditional mutual funds active in these markets. We use five existing performance measurement models plus a new asset-style factor model to identify the return sources and the alpha generated by both types of funds. We analyze subperiods, different market environments, and structural breaks. Our results indicate that some hedge funds generate significant positive alpha, whereas most mutual funds do not outperform traditional benchmarks. We find that hedge funds are more active in shifting their asset allocation. The higher degree of freedom that hedge funds enjoy in their investment style might thus be one explanation for the differences in performance.     

The performance of global bond mutual funds

This paper studies the risk and return characteristics of global bond mutual funds during 1988–95. These actively managed funds did not demonstrate superior performance, net of expenses, against a wide range of benchmarks and performance was negatively related to fund expenses. During the sample period, returns on global bond funds were sensitive to exchange rate movements, even after controlling for local currency returns on country bond indices. The funds had high exposure to the European, the Canadian, and the US bond markets and were least sensitive to the Japanese Bond index and movements in Japanese Yen. The funds did not outperform a US Bond index, suggesting that expenses might have outweighed diversification benefits during the sample period.     

The performance of US equity mutual funds

The paper examines the performance of US no-load equity mutual funds. Fund performance is derived using stochastic frontier analysis for a flexible functional form. This analysis allows us to derive parametric estimates of efficiency scores for each fund in our sample for the first time in the literature. Our results indicate that US no-load equity funds display varying levels of efficiency over time but also depending on size and on investment style. Robustness analysis reaffirm the efficiency scores remain consistent across different selections of inputs and outputs as well as the underlying distribution of the return. Having estimated each fund’s efficiency in the sample we unveil their underlying dynamics, also with respect to risk and operational characteristics such as flows, assets, and Morningstar star ratings. Panel-VAR estimations reveal that the response of funds’ efficiency to a shock in risk is positive and substantial. Some evidence of reverse causality is also observed. Finally, we extend our analysis to investigate the relationship between funds performance and key covariates across subgroups defined by size.     

Competition among mutual funds

We examine the impact of the entry of new mutual funds on incumbents using the overlap in their portfolio holdings as a measure of competitive intensity. This simple metric delivers powerful economic results. Incumbents that have a high overlap with entrants subsequently engage in price competition by reducing management fees. Distribution fees, however, rise so that investors do not benefit as much from price competition. Funds with high overlap also experience quantity competition through lower investor flows, have lower alphas, and higher attrition rates. These effects only appear after the late 1990s, at which point there appears to be an endogenous structural shift in the competitive environment. We conclude that the mutual fund market has evolved into one that displays the hallmark features of a competitive market.     

The performance and diversification benefits of funds of hedge funds

We examine the performance and diversification potential of 332 funds of hedge funds (FOHFs) for the period from January 1990 to May 2003. Consistent with prior studies, we find that FOHFs appear to underperform the hedge fund index on a risk-adjusted basis. However, FOHFs have characteristics that offset their apparent underperformance. Their returns do not suffer from negative skewness that is a feature of many hedge fund strategies. Relative to the hedge fund index, we find that FOHFs have lower correlations with stock indices in both bull and bear markets, making them a better diversification tool in equity portfolios. For bond portfolios, however, FOHFs have no diversification advantage over hedge fund indexing.     

Business ties and proxy voting by mutual funds

The magnitude of mutual funds’ business ties with their portfolio firms is documented and is linked to funds’ proxy votes at specific firms and to overall voting practices. Aggregate votes at the fund family level indicate a positive relation between business ties and the propensity to vote with management. Votes at specific firms, however, reveal that funds are no more likely to vote with management of client firms than of non-clients. Because the votes took place when funds knew their votes would be publicly scrutinized, fund families with a larger client base may have adopted voting policies that led to less frequent opposition to management at all firms.     

投连险与基金信息披露的比较分析

与国际通行做法相比,我国投连险投资账户多履行了一个资产组合管理职能,这就使得投连险投资账户与基金具有了一定的可比性。本文基于投连险与基金信息披露的比较视角,指出了我国投连险信息披露存在的问题,并从保险公司、监管部门、社会力量三个方面提出了相应的对策。     

Investing in equity mutual funds

We construct optimal portfolios of equity funds by combining historical returns on funds and passive indexes with prior views about asset pricing and skill. By including both benchmark and nonbenchmark indexes, we distinguish pricing-model inaccuracy from managerial skill. Modest confidence in a pricing model helps construct portfolios with high Sharpe ratios. Investing in active mutual funds can be optimal even for investors who believe managers cannot outperform passive indexes. Optimal portfolios exclude hot-hand funds even for investors who believe momentum is priced. Our large universe of funds offers no close substitutes for the Fama-French and momentum benchmarks.     

Uncertainty avoidance and mutual funds

We study how culture influences mutual funds around the world. Uncertainty Avoidance (UA), which is related to ambiguity aversion, is negatively associated with flow-performance sensitivity, deviation from the fund benchmark, fund alpha, and the fraction of active management across the 25 countries in our sample. This is true even when controlling for an exhaustive set of fund- and country-level characteristics. We also find that a fund's deviation from its benchmark is not only affected by the UA of its domicile country but also by the UA of its fund family's country of origin. Our results highlight the importance of considering cultural characteristics, and UA in particular, when studying mutual funds across countries.     

Time-varying performance of international mutual funds

We examine the ability of one- and two-factor regime switching models to describe US, developed, and emerging market mutual fund returns. We find that a two-factor fixed transition probability model adequately describes the multivariate series of mutual fund returns without the need to model time-varying transition probabilities. Mutual fund performance, as measured by a state dependent Jensen's alpha, varies with economic regimes that are defined according to the global equity market mean. Our primary two-factor fixed transition probability model shows that emerging market mutual fund alphas are often significantly positive in global bull regimes. Consideration of alternative second risk factors suggests that both the foreign exchange factor, or the recently proposed Hou, Karolyi and Kho (2011) value factor can improve series forecasts and out-of-sample portfolio performance.     

Momentum strategies of German mutual funds

The existence of the momentum effect in stock returns has been documented for the US (e.g., Jegadeesh and Titman in J. Finance 48(1), 65–91, 1993) and many other national equity markets worldwide (e.g., Griffin et al. in J. Finance 58(6), 2515–2547, 2003). However, little is known about the active employment of momentum strategies among institutional investors outside the US. This paper provides first evidence of momentum behavior among German mutual funds. We find the fund trades to follow stock returns on an aggregated institutional level. Moreover, we detect significant momentum behavior among funds with a European and global equity focus, as well as among funds predominantly investing in Asia. In contrast, German funds do not seem to engage in momentum strategies when trading domestic stocks. While only half the funds in our sample trade in accordance with past returns, 66 % of the funds within the largest size quintile follow momentum strategies. Finally, we do not find momentum trading funds to outperform the other funds.     

The option CAPM and the performance of hedge funds

We evaluate the investment performance of hedge funds using an asset pricing model that is characterized by a piecewise-linear stochastic discount factor, and which we estimate using the generalized method of moments by minimizing the Hansen–Jagannathan distance. Our results show that, once non-linearities and public information are taken into account, there is only evidence of positive performance for the overall hedge fund index, equity-market neutral strategy and the global macro strategy.     

Performance persistence of international mutual funds

This study applies the “winner–winner, winner–loser” methodology developed by Brown and Goetzmann, Goetzmann and Ibbotson, and Malkiel to test for short-term performance persistence in international equity mutual funds over the 20-year period from 1977 to 1996. Persistence tests are applied to a database consisting of all international equity funds in existence during this period, varying from a low of 11 (1977) to a high of 473 (1996) funds, reflecting the extremely rapid growth of this asset class over the last 20 years. The authors are not aware of any other persistence studies of international equity funds. The results show statistically significant performance persistence for 1-year holding periods, but no persistence for 2-, 3- or 4-year periods. For 1-year periods, overall, performance persistence is statistically significant at the .001 level. This leads to the conclusion that international equity mutual funds exhibit strong performance persistence for short-term (1-year holding periods), but persistence generally fades after the first year. These results are generally consistent with results found by other researchers using this methodology. Survivorship bias is a concern in virtually all time series studies of mutual fund returns. This bias is minimal in this study because each new fund is added to the database, merging funds continue to be included and adjustments are made for funds that cease operations. The only bias is that if any fund closed and did not merge with an existing fund, that fund would not have returns to be included for the future periods. Only 28 funds ceased operations over the 20-year period during which 490 new funds were introduced.     

Affiliated mutual funds and analyst optimism

This paper extends the literature on analyst optimism. Our analysis of a large sample of recommendations issued from 1995 through 2006 indicates that sell-side analysts are likely to assign frequent and favorable ratings to a stock after the analysts’ affiliated mutual funds invest in that stock. Controlling for a number of variables, including the ties between analysts and investment banks, we find that the greater the portfolio weight of a stock in the fund family, the more optimistic the stock ratings from affiliated analysts become. Since 2002, analysts’ optimism on stocks held by affiliated mutual funds has declined. However, an analyst's decision of upgrading a stock to a “strong buy” rating is still significantly associated with the portfolio weight of that stock in the fund family.     

Forecasting correlation among equity mutual funds

Investors often buy multiple funds that are actively managed, specializing within narrowly defined market segments. To successfully implement a strategy of diversification investors must obtain accurate estimates of correlation among mutual fund returns. This paper forecasts mutual fund correlations using eight models that are broadly classified into historical, mean and index. Results indicate that estimate of future correlations from the Multi-Style Index, Dynamic and Fama–French 3-Factor models have the lowest prediction errors. Moreover, the relative ranks of Multi-Style Index and Fama–French 3-Factor models have lower dispersion across different forecasting time periods and in sub-samples of funds belonging to similar or different ‘style’ categories.     

Rating mutual funds: Construction and information content of an investor-cost based rating of Danish mutual funds

We develop a new rating of mutual funds: the atpRating. The atpRating assigns crowns to each individual mutual fund based upon the costs an investor pays when investing in the fund in relation to what it would cost to invest in the fund's peers. Within each investment category, the rating assigns five crowns to funds with the lowest costs and one crown to funds with the highest costs.We investigate the ability of the atpRating to predict the future performance of a fund. We find that an investor who has invested in the funds with the lowest costs within an investment category would have obtained a risk-adjusted excess return that is approximately 3–4 percentage points higher per annum than if the funds with the highest costs had been invested in.We compare the atpRating with the Morningstar Rating. We show that one reason why the atpRating and the Morningstar Rating contain different information is that the returns Morningstar uses as inputs when rating funds are highly volatile whereas the costs the atpRating uses as inputs when rating funds are highly persistent. In other words, a fund that has low costs one year will most likely also have low costs the following year, whereas the return of a fund in a certain year generally contains only little information about the future return that the fund will generate.Finally, we have information on the investments in different mutual funds made by a small subgroup of investors known to have been exposed to both the atpRating and the Morningstar Rating. We find that investors have clear preferences for funds rated high by both the atpRating and the Morningstar Rating.