The Geography of Sub-advisors, Managerial Structure, and the Performance of International Equity Mutual Funds

Review of Asset Pricing Studies, forthcoming

60 Pages Posted: 2 Jan 2019 Last revised: 28 Feb 2023

See all articles by Markus S. Broman

Markus S. Broman

Ohio University

Michael Densmore

University of New Brunswick - Fredericton

Pauline Shum Nolan

York University - Schulich School of Business

Date Written: September 20, 2022

Abstract

We study whether sub-advising abroad provides an information advantage that improves the performance of international equity mutual funds. We find that it does not. In fact, internationally outsourced funds underperform on a risk-adjusted basis by up to 162 bps annually. The underperformance is concentrated in funds managed by single sub-advisors, who are less likely to be terminated after poor performance compared to funds with multiple sub-advisors. We dissect fund performance by the location of its sub-advisors and find that international sub-advisors underperform primarily in their local holdings. Finally, we show that the industry is nonetheless on a path towards equilibrium.

Keywords: Mutual Fund, Performance, Sub-advisor, Local Information, Management Teams, Outsourcing

JEL Classification: G11, G12, G14, G15, G23

Suggested Citation

Broman, Markus S. and Densmore, Michael and Shum Nolan, Pauline, The Geography of Sub-advisors, Managerial Structure, and the Performance of International Equity Mutual Funds (September 20, 2022). Review of Asset Pricing Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=3302214 or http://dx.doi.org/10.2139/ssrn.3302214

Markus S. Broman

Ohio University ( email )

College of Business, Finance Department
Copeland Business Annex 207
Athens, OH 45701-2979
United States

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

Michael Densmore (Contact Author)

University of New Brunswick - Fredericton ( email )

Bailey Drive
P.O. Box 4400
Fredericton NB E3B 5A3, New Brunswick E3B 5A3
Canada

Pauline Shum Nolan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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