Standing Out in the Fund Family: Deviation from a Family Portfolio Predicts Mutual Fund Performance
51 Pages Posted: 1 Sep 2011 Last revised: 22 Jun 2013
Date Written: June 21, 2013
This paper investigates the role of the family organization of the mutual fund industry in shaping managerial portfolio decisions and fund performance. Mutual fund managers who actively deviate from the "average" portfolio of other funds in the same fund family significantly outperform managers who passively mimic their family's portfolio. The superior performance of high-deviation managers is driven by their better stock-selection and timing abilities. Skilled managers deviate from the family portfolio because withholding their investment ideas from family peers enables such managers to achieve top rank in the family and benefit from the preferential treatment granted to best-performing family members. I show that deviation from a family portfolio is a new dimension of active management and argue that it captures superior managerial skill.
Keywords: Mutual fund performance, value of active management, fund family, fund company
JEL Classification: G12
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