The Impact of Mutual Fund Family Membership on Investor Risk
28 Pages Posted: 3 Nov 2008
Date Written: May 2004
Many investors confine their mutual fund holdings to a single fund family, either for simplicity or through restrictions placed by their retirement savings plan. We find evidence that mutual fund returns are more closely correlated within fund families, which reduces the benefits of investor diversification. The increased correlation is due primarily to common stock holdings, but is also more generally related to families having similar exposures to economic sectors or industries. Fund families also show a propensity to focus on high risk or low risk strategies, which leads to a greater dispersion of risk across restricted investors.
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