Mutual Fund Proliferation and Entry Deterrence

Abstract

Why do so few mutual fund families launch so many funds and styles around the World? We posit that launching numerous funds on an increasingly granular style grid allows incumbent families to congest the product space and deter market entry. Key to this argument is the persistently low dimensionality of the mutual fund product space, which we establish by analyzing the names of over 40,000 equity funds sold in 91 countries between 1931 and 2015. Over time, the strategy of filling up the style grid has led to the dominance of few families offering large, granular, and similar fund menus.

Keywords: Fund Families, Fund Proliferation, Entry Deterrence, International Markets

JEL Classification: G15, G23, L1