To Group or Not to Group? Evidence from CRSP, Morningstar Principia, and Morningstar Direct Mutual Fund Databases
Richard Ivey School of Business, University of Western Ontario
July 27, 2014
In spite of the overwhelming trend in the fund industry towards team management, empirical studies have found no clear performance benefits for this phenomenon. It results from large discrepancies in reported managerial structures in both CRSP and Morningstar Principia datasets versus SEC records. These discrepancies lead to the underestimation of team-managed fund performance. In fact, with a much more accurate Morningstar Direct data, which has a 95% plus match with SEC filings, team-managed funds exhibit higher average risk-adjusted returns than single-managed funds. This performance spread is present across all fund categories, except aggressive funds, and is robust to the inclusion of fund- and manager-level controls. The relation between team size and fund performance is non-linear and the largest team-induced gains are achieved by funds managed by three individuals. Furthermore, team-managed funds invest in a larger number of securities but hold more concentrated portfolios than single-managed funds. Finally, team-managed funds do not have excessive market or total risks; they trade less aggressively, charge lower fees, and generate some extra inflows for their funds. Thus, Morningstar Direct data shows that team-management is indeed useful for the fund industry.
Number of Pages in PDF File: 65
Keywords: Database discrepancy, Management structure, Performance evaluation, Portfolio holdings
JEL Classification: D70, G23, J24
Date posted: April 29, 2012 ; Last revised: July 28, 2014
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