Can Mutual Fund Families Affect the Performance of Their Funds?
Bates White, LLC
Integrated Finance LTD; Massachusetts Institute of Technology (MIT) - Sloan School of Management
EFMA 2004 Basel Meetings Paper
We examine whether accounting for mutual fund families can help explain the performance of their mutual funds, and if so, how they succeed to affect the performance of the funds they manage. We hypothesize that larger families not only have the incentive to selectively push some of their funds, but also the means to do so. When restricting our sample to funds that belong to larger families, a portfolio of funds that longs the portfolio of the previous year's best performing funds and shorts the previous year's worst performing funds has a positive monthly alpha of 58 basis points. We also show that there exists persistence of performance of these funds inside their respective families. This persistence is directly related to the number of funds in the family which we interpret as a measure of the latitude the family has in allocating resources unevenly between its funds. Lastly, we show that indeed the better performing funds in a family have a higher probability of getting more managers, which are one of the main resources available. This seems to imply that families do not always allocate resources proportionally according to the funds' needs but in a way that allows the family to promote certain funds.
Number of Pages in PDF File: 44
Keywords: Mutual Funds, Mutual Fund Families, Performance Persistence, Organizational Structure
JEL Classification: G23, G10
Date posted: May 6, 2004