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

Abstract

Fund companies regularly send shareholder letters to their investors. We use textual analysis to investigate whether these letters matter for fund flows and whether they predict performance and investment styles. We find that fund investors react to the writing style of shareholder letters; a less negative tone and a personal writing style lead to higher net flows. Thus, fund companies can use shareholder letters as a strategic instrument to avoid redemptions. Letter writing style is informative for fund investors as it predicts changes in fund managers' risk taking and investment styles. A personal writing style additionally predicts better fund performance.

Keywords: Fund Flows, Textual Analysis, Shareholder Letters, Investment Styles, Form N-CSR, Fund Performance

JEL Classification: G23, G11