A Dissection of Mutual Fund Fees, Flows, and Performance

128 Pages Posted: 24 Oct 2015 Last revised: 22 Jun 2017

Douglas J. Cumming

York University - Schulich School of Business

Sofia Johan

York University - Schulich School of Business; Tilburg Law and Economics Center (TILEC)

Yelin Zhang

York University, Schulich School of Business, Students

Date Written: February 8, 2016

Abstract

This paper provides a dissection of both mutual fund fees and flows into several categories, and presents evidence that relates specific components of fees to flows, and fees and flows to performance. For stand-alone funds that cannot be purchased directly from fund managers, fees that compensate fund advisors when investors maintain their portfolio positions, and fees that penalize investors for early withdrawal, have a much flatter flow-performance relationship (“flow-performance slope”), and higher flows regardless of past performance (“flow-performance intercept”). Further, the data indicate that flow-performance intercept and slope are significantly negatively and positively, respectively, related to future risk-adjusted performance, which is consistent with the view that flow-performance provides a strong incentive to generate future returns. These findings are quite stable over time, and robust to numerous sensitivity checks. We find some consistency in the evidence but less robust statistical significance amongst the subsamples of direct purchased funds, and among fund-of-funds.

Keywords: Mutual Funds, Management Expense Ratio (MER), Trailer Fees, 12b-1s

JEL Classification: G23, G30

Suggested Citation

Cumming, Douglas J. and Johan, Sofia and Zhang, Yelin, A Dissection of Mutual Fund Fees, Flows, and Performance (February 8, 2016). Available at SSRN: https://ssrn.com/abstract=2678260 or http://dx.doi.org/10.2139/ssrn.2678260

Douglas J. Cumming (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Sofia A. Johan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Yelin Zhang

York University, Schulich School of Business, Students ( email )

Toronto, Ontario
Canada

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