Characteristics of Mutual Fund Portfolios: Where are the Value Funds?

50 Pages Posted: 26 Dec 2018

See all articles by Martin Lettau

Martin Lettau

University of California - Haas School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Sydney C. Ludvigson

New York University - Department of Economics; National Bureau of Economic Research (NBER)

Paulo Manoel

University of Kentucky - Department of Finance & Quantitative Methods

Multiple version iconThere are 3 versions of this paper

Date Written: December 2018

Abstract

This paper provides a comprehensive analysis of portfolios of active mutual funds, ETFs and hedge funds through the lens of risk (anomaly) factors. We show that that these funds do not systematically tilt their portfolios towards profitable factors, such as high book-to-market (BM) ratios, high momentum, small size, high profitability and low investment growth. Strikingly, there are virtually no high-BM funds in our sample while there are many low-BM “growth” funds. Portfolios of “growth” funds are concentrated in low BM-stocks but “value” funds hold stocks across the entire BM spectrum In fact, most “value” funds hold a higher proportion of their portfolios in low-BM (“growth”) stocks than in high-BM (“value”) stocks. While there are some micro/small/mid-cap funds, the vast majority of mutual funds hold very large stocks. But the distributions of mutual fund momentum, profitability and investment growth are concentrated around market average with little variation across funds. The characteristics distributions of ETFs and hedge funds do not differ significantly from the those of mutual funds. We conclude that the characteristics of mutual fund portfolios raises a number of questions about why funds do not exploit well-known return premia and how their portfolio choices affects asset prices in equilibrium.

Suggested Citation

Lettau, Martin and Ludvigson, Sydney C. and Manoel, Paulo, Characteristics of Mutual Fund Portfolios: Where are the Value Funds? (December 2018). NBER Working Paper No. w25381, Available at SSRN: https://ssrn.com/abstract=3306086

Martin Lettau (Contact Author)

University of California - Haas School of Business ( email )

Haas School of Business
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HOME PAGE: http://faculty.haas.berkeley.edu/lettau/

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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Sydney C. Ludvigson

New York University - Department of Economics ( email )

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New York, NY 10012
United States
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212-995-4186 (Fax)

HOME PAGE: http://www.econ.nyu.edu/user/ludvigsons/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paulo Manoel

University of Kentucky - Department of Finance & Quantitative Methods ( email )

Lexington, KY 40506
United States

HOME PAGE: http://paulomanoel.com

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