Abstract
This study examines the conditions that lead mutual funds to underperform or outperform competitors. Using fuzzy-set qualitative comparative analysis (fsQCA), we draw upon extensive research on fund returns to affirm and extend earlier discoveries. Fund performance (Morningstar ratings), features of the funds themselves, and characteristics of the fund managers are considered. Positive Morningstar star and analyst ratings are necessary conditions for funds to generate value (measured by Jensen’s alpha). Funds with low management fees and low ongoing fees have attractive Sharpe ratios and high returns. Likewise, large funds with good Morningstar ratings have good Sharpe ratios and returns, often when fund managers have short tenures.
Highlights
In the social sciences, the research-consuming public repeatedly fails to act upon widely published findings
FsQCA is useful when cases are best understood as combinations of attributes that potentially lead to an outcome
We contribute methodologically to research on what influences mutual fund performance by testing our conceptual model using a configurational comparative technique, namely fuzzy-set qualitative comparative analysis (fsQCA)
Summary
The research-consuming public repeatedly fails to act upon widely published findings. This study affirms and extends earlier findings concerning mutual fund returns and risks, doing so using results from fuzzy-set qualitative comparative analysis (fsQCA), a method that scholars rarely employ. The perceived value of active management dominates the reality: Returns justifying active management are rare Despite this paradox, scholars conclude that finding successful funds ex ante is extremely difficult (Cuthbertson, Nitzsche, & O’Sullivan, 2016). The use of fsQCA in this study contributes to the literature on factors that affect mutual fund performance (Ragin, 2006). FsQCA provides a novel tool for making empirical and theoretical inroads into the debate on factors that influence mutual fund performance.
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