Mutual Fund Shareholder Letters: Flows, Performance, and Managerial Behavior

77 Pages Posted: 16 Nov 2014 Last revised: 18 Dec 2020

See all articles by Alexander Hillert

Alexander Hillert

Goethe University Frankfurt - Department of Finance

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance

Stefan Ruenzi

University of Mannheim - Department of International Finance

Date Written: December 17, 2020

Abstract

Fund companies regularly send shareholder letters to their investors. We use textual analysis to investigate whether the writing style of these letters matters for fund flows and whether it predicts fund performance and investment styles. We find that fund investors react to the tone and content of shareholder letters. A negative tone leads to lower net flows, while honest communication that explains fund performance in light of current economic conditions, as well as a plain English writing style increase flows. Thus, fund companies can use shareholder letters as a tactical instrument, e.g., to avoid redemptions. Fund investors can use shareholder letters to learn about future changes in fund managers' risk taking and investment styles.

Keywords: Fund Flows, Textual Analysis, Shareholder Letters, Fund Performance

JEL Classification: G23, G11

Suggested Citation

Hillert, Alexander and Niessen-Ruenzi, Alexandra and Ruenzi, Stefan, Mutual Fund Shareholder Letters: Flows, Performance, and Managerial Behavior (December 17, 2020). Available at SSRN: https://ssrn.com/abstract=2524610 or http://dx.doi.org/10.2139/ssrn.2524610

Alexander Hillert (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

Stefan Ruenzi

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

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