Mutual Fund Competition and Fund Manager Strategy Choice

40 Pages Posted: 4 Nov 2020 Last revised: 6 Nov 2020

See all articles by Roberto Stein

Roberto Stein

University of Nebraska at Lincoln - Department of Finance

Date Written: October 16, 2020

Abstract

The increasing number of mutual funds and assets under management of the industry are credited with restricting opportunities and stifling incentives for fund managers to generate alpha. I show that some managers are able to adapt to the more competitive market environment by tilting their investment strategy towards 'quality'. Using the fund's loading on the QMJ factor to proxy for quality management, I find that high quality funds outperform their peers, and generate annual alphas of 2.88%. Besides peer competition, a clientele effect seems to influence the choice of strategy. Clients of high quality funds are more sophisticated and focus on risk-adjusted returns, while those of low quality funds fit the description of uninformed investors, and seem unresponsive to both gross returns and alphas.

Keywords: Mutual funds, portfolio holdings, fund performance, fund manager skill

JEL Classification: G21, G23

Suggested Citation

Stein, Roberto, Mutual Fund Competition and Fund Manager Strategy Choice (October 16, 2020). Available at SSRN: https://ssrn.com/abstract=3713386 or http://dx.doi.org/10.2139/ssrn.3713386

Roberto Stein (Contact Author)

University of Nebraska at Lincoln - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
70
Abstract Views
419
rank
467,311
PlumX Metrics