Is Concentration a Good Idea? Evidence from Active Fund Management

In this paper, we examine whether mutual fund managers in Taiwan produce superior performance through concentrated investment strategy, and find that mutual funds with higher degree of concentration have higher investment performance and lower risk during the period 2001–2009. Moreover, when the degree of industry concentration of fund holdings is higher, there is less impact on stock market performance. However, the premium of the market portfolio has more impact on the performance of funds when there is lower degree of industry concentration. We also find that the stock-picking and market-timing abilities of mutual fund managers result in funds with high degree of industry concentration having more returns and lower risks than the funds with low degree of industry concentration.     

Careers and Survival: Competition and Risk in the Hedge Fund and CTA Industry

Investors in hedge funds and commodity trading advisors (CTAs) are concerned with risk as well as return. We investigate the volatility of hedge funds and CTAs in light of managerial career concerns. We find an association between past performance and risk levels consistent with previous findings for mutual fund managers. Variance shifts depend upon relative rather than absolute fund performance. The importance of relative rankings points to the importance of reputation costs in the investment industry. Our analysis of factors contributing to fund disappearance shows that survival depends on absolute and relative performance, excess volatility, and on fund age.     

Manager education and mutual fund performance

This paper examines the relationship between manager education and mutual fund performance, following Chevalier and Ellison [Chevalier, Judith, Ellison, Glenn, 1999. Are some mutual fund managers better than others? Cross-sectional patterns in behavior and performance. Journal of Finance 54, 3, 875–899]. We refine their analysis by investigating if the quality of the MBA program, as measured by the mean GMAT score and Business Week ranking, has any effect on performance. We find that the mean GMAT score of the MBA program is positively and significantly related to fund performance. Managers who hold MBAs from schools ranked in the top 30 of the Business Week rankings of MBA programs exhibit performance superior to the performance of both managers without MBA degrees and managers holding MBAs from unranked programs. We also find that other education variables, such as whether the manager attained a CFA designation or holds either a non-MBA masters-level graduate degree or Ph.D., are generally unrelated to mutual fund performance.     

The influence of buy-side analysts on mutual fund trading

We present evidence on the trading and performance impact of buy-side analysts. Using data provided by a large global asset manager, we relate buy-side analysts’ recommendations to fund transactions on a daily basis. We show that buy-side analysts significantly influence trading decisions: Fund managers strongly follow recent recommendation revisions, even after controlling for other trading determinants. Positive abnormal returns to buy-side analysts’ revisions are also reflected in the performance of mutual fund trades: Trades triggered by buy-side recommendations have higher returns than other trades. Overall, the impact of buy-side analysts is more pronounced than that of sell-side analysts.     

Behavioural analysis of socially responsible investment managers: specialists versus non-specialists

We analyse the performance and performance persistence of US socially responsible investment (SRI) managers from a managers’ perspective, differentiating between specialist managers (only running SRI mutual funds) and non-specialists (running SRI and conventional mutual funds). We find that the SRI fund nature has a significantly negative influence on the non-specialist performance. Furthermore, top managers of both groups persistently outperform SRI funds. However, non-specialist managers obtain superior performance to specialist managers, perhaps because of learning synergies in both fund niches. Results also show more persistence with non-specialists, especially with regard to conventional mutual funds.     

Can Mutual Fund “Stars” Really Pick Stocks? New Evidence from a Bootstrap Analysis

We apply a new bootstrap statistical technique to examine the performance of the U.S. open‐end, domestic equity mutual fund industry over the 1975 to 2002 period. A bootstrap approach is necessary because the cross section of mutual fund alphas has a complex nonnormal distribution due to heterogeneous risk‐taking by funds as well as nonnormalities in individual fund alpha distributions. Our bootstrap approach uncovers findings that differ from many past studies. Specifically, we find that a sizable minority of managers pick stocks well enough to more than cover their costs. Moreover, the superior alphas of these managers persist.     

Do Female Mutual Fund Managers Manage Differently?

We examine the performance and investment behavior of female fixed‐income mutual fund managers compared with male fixed‐income mutual fund managers. We find that male‐ and female‐managed funds do not differ significantly in terms of performance, risk, and other fund characteristics. Our results suggest that differences in investment behavior often attributed to gender may be related to investment knowledge and wealth constraints. Despite the similarities between male and female managers, we find evidence that gender influences the decision making of mutual fund investors. We find that the net asset flows into funds managed by females are lower than for males, especially for the manager's initial year managing the fund.     

Does concurrent management of mutual and hedge funds create conflicts of interest?

This paper shows that conflicts of interest may exist in cases where a hedge fund manager starts a mutual fund but not in the opposite case. We compare performance, asset flows, and risk incentives to establish several key differences between these two scenarios: First, prior to concurrent management, hedge fund managers experience worse performance while mutual fund managers achieve better performance relative to their full-time peers. Second, hedge fund managers who choose concurrent management are disproportionately the ones with less experience. Their hedge funds tend to suffer a decline in performance after the event. By contrast, mutual fund managers who choose concurrent management tend to outperform their full-time peers. Based on our findings, we make important recommendations for policy makers and companies. The relevance of our recommendations extends beyond the small share of companies presently engaged in concurrent management.     

Top management turnover an empirical investigation of mutual fund managers

This paper examines the relation between the replacement of mutual fund managers and their prior performance. Using the growth rate in a fund's asset base and its portfolio returns as two separate measures of performance, I document an inverse relation between the probability of managerial replacement and fund performance. The sample of departing fund managers exhibits higher portfolio turnover rates and higher expenses relative to an objective-matched sample of nonreplaced fund managers. The overall evidence is consistent with the presence of well-functioning internal and external market mechanisms for mutual fund managers.     

Are Some Mutual Fund Managers Better Than Others? Cross-Sectional Patterns in Behavior and Performance

We examine whether mutual fund performance is related to characteristics of fund managers that may indicate ability, knowledge, or effort. In particular, we study the relationship between performance and the manager's age, the average composite SAT score at the manager's undergraduate institution, and whether the manager has an MBA. Although the raw data suggest striking return differences between managers with different characteristics, most of these can be explained by behavioral differences between managers and by selection biases. After adjusting for these, some performance differences remain. In particular, managers who attended higher-SAT undergraduate institutions have systematically higher risk-adjusted excess returns.     

Asset Allocation and Selectivity of Asian Mutual Funds During Financial Crisis

This paper evaluates the ability of US-based Asian mutual fund managers in coping with the 1997 Asian financial crisis. We find that the actively managed mutual funds under-perform with respect to the market portfolio by 1.71% in average monthly return. Such poor performance is caused by fund managers' relative weakness in country selection as well as in stock picking. Fund managers are also found to be more skillful in picking the correct market when the market is going up than going down. Our results are consistent with the literature that asset allocation in Asian mutual funds is a dominating factor relative to selectivity in explaining fund returns during the financial crisis. In addition, there exists a negative relation between asset allocation ability and selectivity of fund managers.     

Small-cap equity mutual fund managers as liquidity providers

This paper examines the relation between the performance of small-cap equity mutual funds and the liquidity characteristics of their asset holdings. We study the trading behavior of fund managers and show that on average, they tend to buy less liquid stocks and sell more liquid stocks. We introduce the notion of net “liquidity creation” by fund managers and examine its role in explaining the cross section of small-cap equity mutual fund returns. Our empirical results show that on average, small-cap mutual fund managers are able to earn an additional 1.5% return per year as compensation for providing such liquidity services to the market.     

International mutual fund selectivity and market timing during up and down market conditions

This study examines the selectivity and market-timing ability of international mutual fund managers. Ninety-seven international mutual funds with a minimum of five-year return history selected from the Morningstar OnDisc database are analyzed. Our findings suggest that managers of international mutual funds possess good selectivity and overall performance. We also find weak evidence of poor market-timing ability. Consistent with prior findings from domestic mutual funds, there is a negative correlation between the international fund managers' selection ability and market-timing ability. Finally, managers for Europea funds show poorer performance than those managing the other three international fund groups.     

Risk-taking and performance of government bond mutual funds

This paper investigates the risk exposures of government bond mutual funds and how risk-taking behavior affects fund performance. Government bond mutual funds often outperform their respective benchmark bond indexes before but not after adjusting for bond market risk factors. We show that the risk-taking behavior of fund managers helps to explain the different performances of government bond funds with and without controlling for the risk factors. Our results suggest that risk-taking leads to higher returns relative to benchmarks in normal risk periods but lower returns in high risk periods, suggesting that fund managers consistently take risky bets in fund management. We further show that the risk-taking of government bond funds is persistent and that investors typically have no ability to differentiate between the skill and risk components of fund performance. These findings suggest why fund managers have incentives to take consistently risky positions.     

Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry

We test the hypothesis that when their compensation is linked to relative performance, managers of investment portfolios likely to end up as “losers” will manipulate fund risk differently than those managing portfolios likely to be “winners.” An empirical investigation of the performance of 334 growth-oriented mutual funds during 1976 to 1991 demonstrates that mid-year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid-year winners. Furthermore, we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time.     

Derivative use,fund flows and investment manager performance

Prior literature which examines the use of derivatives by investment managers does not discern between different types of derivative trading strategies. This study is the first to examine and gather data on a particular type of derivative trading strategy undertaken by investment managers. We examine the extent to which equity fund managers use index futures to manage fund flows and the effect this has on their alpha and market timing measures of performance. Our results show that funds that do not use derivatives exhibit lower returns and negative market timing skills when they experience fund flow. The performance of funds that use derivatives, however, is independent of investor’s liquidity demands. In fact, the unconditional performance of the average user fund is statistically equivalent to the performance of the average non-user fund conditional on zero fund flow. Our results provide evidence that derivatives can be beneficial for mutual fund holders under certain conditions.     

The Client Is King: Do Mutual Fund Relationships Bias Analyst Recommendations?

This paper investigates whether the business relations between mutual funds and brokerage firms influence sell‐side analyst recommendations. Using a unique data set that discloses brokerage firms’ commission income derived from each mutual fund client as well as the share holdings of these mutual funds, we find that an analyst's recommendation on a stock relative to consensus is significantly higher if the stock is held by the mutual fund clients of the analyst's brokerage firm. The optimism in analyst recommendations increases with the weight of the stock in a mutual fund client's portfolio and the commission revenue generated from the mutual fund client. However, this favorable recommendation bias toward a client's existing portfolio stocks is mitigated if the stock in question is highly visible to other mutual fund investors. Abnormal stock returns are significantly greater both for the announcement period and, in the long run, for favorable stock recommendations from analysts not subject to client pressure than for equally favorable recommendations from business‐related analysts. In addition, we find that, subsequent to announcements of bad news from the covered firms, analysts are significantly less likely to downgrade a stock held by client mutual funds. Mutual funds increase their holdings in a stock that receives a favorable recommendation but this impact is significantly reduced if the recommendation comes from analysts subject to client pressure.     

Portfolio concentration and fund manager performance

This research examines the relationships among portfolio concentration, fund manager skills, and fund performance in Taiwan's equity mutual fund industry, yielding several empirical findings as follows. First, after controlling for other factors, concentrated equity funds tend to have smaller net asset values, larger fund flows, higher turnover rates, and a younger age and prevail in smaller fund families. Second, concentrated fund managers buy and sell stocks more smartly based on economic trends or market factors than do diversified fund managers, i.e., they have better market‐timing abilities. Third, only partial evidence supports the premise that concentrated equity funds have better next‐quarter risk‐adjusted performances than do diversified ones, as these fund managers' skills positively correlate to risk‐adjusted fund performance. Fourth, fund managers who have better stock‐picking abilities and intensively invest in certain industries generally exhibit better Carhart's alpha in the next quarter than do other fund managers. Fifth, fund managers' stock‐picking abilities more closely relate to long‐term performance than do their market‐timing abilities. Lastly, positive performance persistence is much stronger than negative performance persistence, but concentrated funds do not have stronger performance persistence than do diversified funds.     

European Mutual Fund Performance

This paper presents an overview of the European mutual fund industry and investigates mutual fund performance using a survivorship bias controlled sample of 506 funds from the five most important mutual fund countries. The latter is done using the Carhart (1997) 4-factor asset-pricing model. In addition we investigate whether European fund managers exhibit 'hot hands', persistence in performance. Finally the influence of fund characteristics on risk-adjusted performance is considered. Our overall results suggest that European mutual funds, and especially small cap funds are able to add value, as indicated by their positive after cost alphas. If we add back management fees, four out of five countries exhibit significant out-performance at an aggregate level. Finally, we detect strong persistence in mean returns for funds investing in the UK. Our results deviate from most US studies that argue mutual funds under-perform the market by the amount of expenses they charge.     

资产配置对基金收益影响程度的定量分析

资产配置是证券投资决策的首要环节,它可分为战略性资产配置及包括选时和选股在内的战术性资产配置.资产配置不但影响了基金业绩沿时间的变化,还对基金之间的业绩差异具有较高的解释程度.本文利用中国的市场数据,度量了资产配置对基金收益的影响程度.