Performance Characteristics of Individual vs. Team Managed Mutual Funds

Abstract

In the fields of psychology and evolution, there is a large body of theory and evidence on how individual behavior differs from group behavior, particularly for performance and risk-taking activities. Even so, relatively little attention has been devoted to this topic for research on managed portfolios, though over 50% of mutual funds are managed by a team. This study is an empirical examination of whether funds managed by individuals perform differently than funds managed by teams. Using a sample of about three thousand equity mutual funds over a twelve-year horizon, we find that though funds managed by teams has grown by seven times the rate of funds managed by individuals, there is no significant difference in performance on a risk-adjusted basis. However, funds managed by teams are significantly less risky. In addition to differences in turnover in many fund categories, the total cost of owning a team-managed mutual fund is nearly fifty basis points lower per year than a mutual fund managed by an individual, on average.

Keywords: mutual funds, team, behavorial