Mutual Fund Performance and Families

Abstract

Using a large and long sample of US and European mutual funds we examine the impact that the membership of a fund family has on performance. We test for strategic and competitive behaviour among family funds and whether this affects performance persistence and risk taking behaviour. We find no conclusive evidence of stronger performance persistence among family funds versus non-family funds, although we do find some significant differences in the future performance of portfolios of family and non-family funds formed on the basis of past performance. However, we do provide strong evidence to suggest that a fund’s mid-year ranking within its family affects its risk over the remainder of the year and, most interestingly, that family mid-year rankings have a different impact in the US mutual fund industry than it does in its European equivalent. Among US funds, the results point to intra-family competition where mid-year losers increase risk by more than mid-year winners in an attempt to catch up. The opposite is found to be true for European family funds. Our results therefore highlight significant differences in the ways in which the US and European fund management industries operate.