Style Drift: Evidence from Small-Cap Mutual Funds
53 Pages Posted: 11 Mar 2016 Last revised: 28 Mar 2017
Date Written: January 17, 2017
This paper documents that small-cap mutual funds allocate on average 27% of their portfolio to mid- and large-cap stocks. We find that larger and older small-cap funds are more likely to hold mid- and large-cap stocks, consistent with funds straying from their objective over time. Funds that invest heavily in mid- and large-cap stocks expose their investors to unanticipated risks but investors do not experience higher abnormal returns or performance persistence overall. These funds did outperform their peers by 3% annually in the most recent period between January 2003 and March 2010.
Keywords: Mutual Funds; Small-Cap; Investment Objectives; Style Drift
JEL Classification: G23; G11
Suggested Citation: Suggested Citation