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

95 Pages Posted: 16 Nov 2014 Last revised: 18 May 2021

See all articles by Alexander Hillert

Alexander Hillert

Goethe University Frankfurt - Department of Finance; Leibniz Institute for Financial Research SAFE

Alexandra Niessen-Ruenzi

University of Mannheim, Department of Finance; University of Mannheim - Department of Finance

Stefan Ruenzi

University of Mannheim - Department of International Finance

Date Written: May 17, 2021

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 more outflows, 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. A positive outlook is informative of better future performance and of higher idiosyncratic risk taking and more active investment styles.

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

JEL Classification: G23, G11

Suggested Citation

Hillert, Alexander and Niessen-Ruenzi, Alexandra and Niessen-Ruenzi, Alexandra and Ruenzi, Stefan, Mutual Fund Shareholder Letters: Flows, Performance, and Managerial Behavior (May 17, 2021). 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

Leibniz Institute for Financial Research SAFE ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323
Germany

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

University of Mannheim, Department of Finance ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181 1595 (Phone)

Stefan Ruenzi

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

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