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Fund selection in target date funds
Institution:1. Division of Finance, College of Management, Innovation Center for Big Data and Digital Convergence, Yuan Ze University, Taiwan;2. Anderson School of Management, University of New Mexico, Albuquerque, NM 87131, USA;3. GreTai Securities Market, Taiwan;4. Graduate Institute of Management, College of Management, National Taiwan Normal University, Taiwan;1. College of Economics, Henan University, China;2. Faculty of Business Administration, University of Macau, China;3. CRPE and College of Economics, Zhejiang University, China;1. School of Business, Renmin University of China, Beijing, PR China;2. The Collaborative Innovation Centre for State-owned Assets Administration, Beijing, PR China;3. School of Accounting, Shanghai Lixin University of Accounting and Finance, Shanghai, PR China;1. Department of Money and Banking, National Chengchi University, Taipei, Taiwan;2. Department of International Business, Providence University, Taichung, Taiwan;1. Department of Marketing and Logistics, Ming-Dow University, 369, Wen-Hua Rd., Pitou, Changhua 52345, Taiwan;2. Department of Business Administration, Da-Yeh University, 168, University Rd., Dacun, Changhua 51591, Taiwan;3. Department of Finance, National Chung Hsing University, 45, Xingda Rd., South Dist., Taichung City 40227, Taiwan
Abstract:This study investigates the family-fund strategy in target date funds (TDFs). We find that fund families often create TDFs by bundling existing mutual funds and use TDFs to increase non-performance-related flows to constituent funds that are not competitive. Such incremental non-performance-related flows exceed 1% of total net assets on a monthly basis. We further investigate the potential monitoring effect of plan sponsors by examining the association between the characteristics of constituent funds and their likelihood of staying in the TDFs. We find that constituent funds with lower return performance or younger age exhibit a lower survival probability of continuing as part of a TDF. Therefore, the problem of potential agency cost at the selection point of the constituent funds may be mitigated to some extent after entering TDFs.
Keywords:Target date funds  Family-fund strategy  Performance  Fund family  G11  G23
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