Mutual Fund Outperformance and Growth

Abstract

Does better performance lead to more assets? We examine nearly 30,000 mutual funds to determine the effect that a funds outperformance relative to its peers has on the funds later asset size. We find that a fund that earns ten percent more than the size-weighted average of its peers in its style group in one year will on average experience an extra five percent excess asset growth in the subsequent year. The findings are robust to all types of fund styles and all fund sizes, with two exceptions: small funds of any style, and very large fixed income funds.

Keywords: Mutual funds, alpha, outperformance, bench-marks, asset growth, NAV

JEL Classification: G00