Does Sub-Advising Abroad Improve the Performance of International Mutual Funds?
57 Pages Posted: 2 Jan 2019
Date Written: December 16, 2018
We investigate the impact of having a foreign presence in research and asset management on the performance of international equity funds sold in the U.S. We show that hiring sub-advisors located abroad does not improve fund performance, suggesting that they are unable to exploit local information, and/or that U.S.-based managers are not disadvantaged by being physically far away. Further, funds that hire outsourced, as opposed to in-house, international sub-advisors underperform on a risk-adjusted basis by up to 122 bps annually, compared to funds that are not sub-advised. The underperformance can partly be explained by the international outsourced sub-advisors being less active in managing the assets, particularly in their local holdings.
Keywords: Mutual Fund, Performance, Sub-Advisor, Outsourcing, Local Information, Home Bias
JEL Classification: G11, G12, G14, G15, G23
Suggested Citation: Suggested Citation