Does Sub-Advising Abroad Improve the Performance of International Mutual Funds?

57 Pages Posted: 2 Jan 2019

See all articles by Markus S. Broman

Markus S. Broman

Syracuse University - Whitman School of Management

Michael Densmore

York University - Schulich School of Business

Pauline Shum Nolan

York University - Schulich School of Business

Date Written: December 16, 2018

Abstract

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

Broman, Markus S. and Densmore, Michael and Shum Nolan, Pauline, Does Sub-Advising Abroad Improve the Performance of International Mutual Funds? (December 16, 2018). Available at SSRN: https://ssrn.com/abstract=3302214 or http://dx.doi.org/10.2139/ssrn.3302214

Markus S. Broman

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

HOME PAGE: http://www.markusbroman.com

Michael Densmore (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Pauline Shum Nolan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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