Winner Funds Research Articles

The Performance Persistence of Winner Fund Managers - Evidence from the Timing and Stock Picking Ability

This study aims to investigate the persistence of timing and stock picking ability of “winner fund managers” instead of winner funds. The sample of this study is the previous and next equity funds which the same fund managers manage in Taiwan. we measure the ranking of timing and stock picking ability of fund managers for the period they manage the specific fund. The result shows that for the whole fund managers, the successive two funds they manage are performance persistent. Moreover, the stock picking ability of the two funds they manage is persistent no matter the two funds belonging to the same fund company or not. Regarding the winner fund manager, we find no persistence of return, timing ability and stock picking ability. No matter the winner fund managers change the jobs to the other fund companies or not, the next funds the winner fund managers manage are not timing and stock picking ability persistent. The result of logistic regression demonstrates that the probability of becoming timing or stock picking winners of the next funds which the timing or stock picking winner managers manage is not significantly higher than other funds. The result indicates that investors do not necessarily follow the timing and stock picking winner fund managers. The performance of the next funds which the winner fund managers manage may reverse especially for the successive two funds belonging to the same fund company. Little literature investigates the issue regarding the fund timing and stock picking performance from the viewpoint of “fund managers”. The results of this study provide investing implications for fund investors when they are choosing funds.

Treasurer's Report for Financial Year (FY) 2013

Society’s total assets as of May 31, 2014, are as follows: $2,933,887.35 • Cash accounts (community checking + money market business): $2,749,480.42 • Total CDs: $184,406.93 This report covers the period of June 1, 2013–May 31, 2014. Due to the ongoing success of Molecular Biology and Evolution (MBE) and Genome Biology and Evolution (GBE), whose revenues continue to increase, the society remains in outstanding financial health. Society membership decreased marginally during financial year 2013: Membership-only subscriptions decreased from 732 in 2012 to 332 in 2013, whereas Society membership + journal subscriptions increased from 313 in 2012 to 687 in 2013. The society used its income to publish its two journals, MBE and GBE, and to support its annual meeting, in 2013, held in Chicago, IL. This included providing increased graduate and postdoctoral travel awards, funding the Walter Fitch Prize Symposium (a cash prize for the winner and travel funds for all eight contestants), running the Undergraduate Diversity Mentoring Program (UDMP), subsidizing the provision of on-site childcare, supporting the travel and accommodation of Council members, and providing travel incentives for associate editors of MBE and GBE. We also supported three satellite meetings on important, focused and timely topics related to molecular evolutionary biology. We continue to receive an annual donation of $2,000USD from Masatoshi Nei to support an honorarium for publication in MBE of the annual Nei Lecture given by the President of Society for MBE (SMBE) during the annual meeting. The 2013 Nei Lecture is to be the first lecture published under this scheme. The total value of the honorarium is to be $4,000USD. Expense Category June 1, 2013– May 31, 2014 (USD) Interest income 532.23 OUP signing bonus (new contract negotiation) 125,000.00 OUP journal revenue (MBE) 585,510.00 OUP journal revenue (GBE) 131,224.00 Society fees collected by OUP 9,817.00 Annual meeting reimbursement 0.00 Nei Lecture fund donation (Masatoshi Nei) 2,000.00 Total inflows 854,083.23 2013 annual meeting 146,120.00 SMBE satellite meetings 54,796.50 Support for diversity programs (e.g., UDMP, childcare subsidy) 27,685.84 Nei Lecture publication honorarium 0.00 Bank charges 295.00 Accounting 1,750.00 Consultancy and professional society management 3,620.00 Corporation fee 40.00 Fitch prize 1,500.00 SMBE council and editors-in-chief travel 26,915.29 MBE/GBE associate editors travel incentive 110,001.07 SMBE travel awards (Fitch, graduate, postdoc) 46,969.00 SMBE website maintenance 514.81 SMBE treasurer expenses 0.00 MBE editorial office expenses 65,356.66 MBE editor expenses 66,000.00 MBE highlights and press releases 6,370.00 GBE editor expenses 0.00 GBE “Highlight” honoraria 10,090.50 Postage 0.00 Total outflows 568,024.67 Overall total 286,058.56 View it in a separate window

Capacity effects and winner fund performance: the relevance and interactions of fund size and family characteristics

This study analyzes the existence of capacity effects and performance persistence for US equity mutual funds for the period from 1992 to 2007. We focus on winner funds and distinguish between capacity effects from both size and inflows and explore their interactions with two measures of family size, i.e. family total net assets under management (family TNA) and the number of funds at the family level (family breadth). The differentiation of family size allows us to analyze competing effects at the family level such as economies of scale as well as organizational complexity costs and conflicts of interest. Our empirical results confirm diseconomies of scale at the winner fund level and indicate that only small winner funds with low inflows significantly outperform the four-factor benchmark on a net return basis. There are no universal benefits from economies of scale at the family level, but our findings suggest the existence of conflicts of interest in families offering a relatively large number of funds. Small winner funds in families offering a small number of funds significantly outperform while economies of scale only materialize among extremely small winner funds. We provide detailed robustness checks for our empirical results. Overall, simply conditioning on fund size is not sufficient for selecting future outperforming funds. The results indicate that fund investors may earn positive abnormal returns when combining information on fund size with information on fund flows or fund family affiliations in their asset allocation decisions.

Treasurer's Report for Financial Year (FY) 2012

Society’s Total Assets as of May 31, 2013, are as follows: $1,625,201.14 Cash accounts (Community Checking + Money Market Business): $1,441,288.02 Total CDs: $183,913.12 This report covers the period from June 1, 2012 to May 31, 2013. Due to the ongoing success of Molecular Biology and Evolution (MBE) and Genome Biology and Evolution (GBE), whose revenues continue to increase, the society remains in outstanding financial health. Society membership increased during FY 2012: membership-only subscriptions increased from 456 in 2011 to 732 in 2012, while society membership + journal subscriptions increased from 239 in 2011 to 313 in 2012. The society used its income to publish its two journals, MBE and GBE, and to support its annual meeting, in 2012 held in Dublin, Ireland. This included providing increased graduate and postdoctoral travel awards, funding the Walter Fitch Prize Symposium (a cash prize for the winner and travel funds for all eight contestants), running the Undergraduate Diversity Mentoring Program (UDMP), supporting the travel and accommodation of Council members, and providing travel incentives for Associate Editors of MBE and GBE. We also supported three satellite meetings on important, focused and timely topics related to molecular evolutionary biology. This year we received a donation of $2000USD from Masatoshi Nei to be used to set up a fund to support an honorarium for publication in MBE of the annual Nei Lecture given by the President of SMBE during the annual meeting. The 2013 Nei Lecture is to be the first lecture published under this scheme. The total value of the honorarium is to be $4000USD. Expense Category June 1, 2012 – May 31, 2013 USD Interest income 748.81 OUP journal revenue (MBE) 554,002.00 OUP journal revenue (GBE) 74,982.00 Society fees collected by OUP 22,288.00 Annual meeting reimbursement 0.00 Nei Lecture fund donation (Masatoshi Nei) 2,000.00 Total inflows 654,020.81 2013 annual meeting (partial) 25000.00 SMBE satellite meetings 65069.50 Support for diversity programs (e.g., UDMP, childcare subsidy) 17567.31 Nei Lecture publication honorarium 0 Bank charges 120.00 Accounting 1,725.00 Corporation fee 40.00 Fitch Prize 1,500.00 SMBE council and editors-in-chief travel 30,710.40 MBE/GBE associate editors travel incentive 96775.62 SMBE travel awards (Fitch, graduate, postdoc) 54719.25 SMBE website maintenance 3,756.42 SMBE treasurer expenses 0.00 MBE editorial office expenses 111,519.42 MBE editor expenses 103,500.00 GBE editor expenses 25,000.00 GBE “Highlight” honoraria 10,329.00 Postage 453.11 Total Outflows 547,785.03 Overall Total 106,235.78 View it in a separate window

Winners and losers: German equity mutual funds

We investigate the performance of winners and losers for German equity mutual funds (1990–2009), using empirical order statistics. When using gross returns and the Fama–French three-factor model, the number of statistically significant positive alpha funds is zero but increases markedly when market timing variables are added. However, when using a ‘total performance’ measure (which incorporates both alpha and the contribution of market timing), the number of statistically significant winner funds falls to zero. The latter is consistent with the bias in estimated alphas in the presence of market timing. We also find that many poorly performing funds are unskilled rather than unlucky.

Treasurer's Report for Financial Year (FY) 2012

Society’s Total Assets as of May 31, 2013, are as follows: $1,625,201.14 Cash accounts (Community Checking + Money Market Business): $1,441,288.02 Total CDs: $183,913.12 This report covers the period from June 1, 2012 to May 31, 2013. Due to the ongoing success of Molecular Biology and Evolution (MBE) and Genome Biology and Evolution (GBE), whose revenues continue to increase, the society remains in outstanding financial health. Society membership increased during FY 2012: membership-only subscriptions increased from 456 in 2011 to 732 in 2012, while society membership + journal subscriptions increased from 239 in 2011 to 313 in 2012. The society used its income to publish its two journals, MBE and GBE, and to support its annual meeting, in 2012 held in Dublin, Ireland. This included providing increased graduate and postdoctoral travel awards, funding the Walter Fitch Prize Symposium (a cash prize for the winner and travel funds for all eight contestants), running the Undergraduate Diversity Mentoring Program (UDMP), supporting the travel and accommodation of Council members, and providing travel incentives for Associate Editors of MBE and GBE. We also supported three satellite meetings on important, focused and timely topics related to molecular evolutionary biology. This year we received a donation of $2000USD from Masatoshi Nei to be used to set up a fund to support an honorarium for publication in MBE of the annual Nei Lecture given by the President of SMBE during the annual meeting. The 2013 Nei Lecture is to be the first lecture published under this scheme. The total value of the honorarium is to be $4000USD. Expense Category June 1, 2012 – May 31, 2013 USD Interest income 748.81 OUP journal revenue (MBE) 554,002.00 OUP journal revenue (GBE) 74,982.00 Society fees collected by OUP 22,288.00 Annual meeting reimbursement 0.00 Nei Lecture fund donation (Masatoshi Nei) 2,000.00 Total inflows 654,020.81 2013 annual meeting (partial) 25000.00 SMBE satellite meetings 65069.50 Support for diversity programs (e.g., UDMP, childcare subsidy) 17567.31 Nei Lecture publication honorarium 0 Bank charges 120.00 Accounting 1,725.00 Corporation fee 40.00 Fitch Prize 1,500.00 SMBE council and editors-in-chief travel 30,710.40 MBE/GBE associate editors travel incentive 96775.62 SMBE travel awards (Fitch, graduate, postdoc) 54719.25 SMBE website maintenance 3,756.42 SMBE treasurer expenses 0.00 MBE editorial office expenses 111,519.42 MBE editor expenses 103,500.00 GBE editor expenses 25,000.00 GBE “Highlight” honoraria 10,329.00 Postage 453.11 Total Outflows 547,785.03 Overall Total 106,235.78 View it in a separate window

Stock investment funds in Brazil: performance and management expertise

This article analyzes the stock investment fund market in Brazil and proposes dynamic rankings constructed from different risk-return metrics, during the period from 1998 to 2009. We find an uncommon level of persistence, mainly among the best performing funds, due to the expertise of the managers. The quadrimestral rebalancing of the portfolios based on these rankings permits inferring that in scenarios characterized as economic booms or recovery of financial markets, the strategies with equal participation in winner funds provides significantly higher average monthly gains, reduction of risk associated with diversification and consequently enhanced performance in relation to market or sector benchmarks. This evidence is robust to the use of different performance metrics for fund selection, indicating that active investors in winning funds demand good performance not only in terms of the Sharpe ratio, but also with respect to other metrics, such as the Treynor, Calmar and Sortino ratios. In these optimistic scenarios, only the industrial sector index (INDX) provided returns compatible with those of these fund’s portfolios. However, during periods of crisis, no strategy involving the funds managed to provide hedge levels characteristic of the electric energy sector index (IEE), so it can be said that the majority of investing strategies are dominated in gain-risk criteria by sector or market indexes, with the exception of value-weighted portfolios composed of losing funds, a signal that the usual passive investors in large funds indexed to the Ibovespa can be presenting a greater level of inertia.

False Discoveries in UK Mutual Fund Performance

AbstractWe use a multiple hypothesis testing framework to estimate the false discovery rate (FDR) amongst UK equity mutual funds. Using all funds, we find a relatively high FDR for the best funds of 32.8% (at a 5% significance level), which implies that only around 3.7% of all funds truly outperform their benchmarks. For the worst funds the FDR is relatively small at 7.6% which results in 22% of funds which truly underperform their benchmarks. For different investment styles, this pattern of very few genuine winner funds is repeated for all companies, small companies and equity income funds. Forming portfolios of funds recursively for which the FDR is controlled at a ‘acceptable’ value, produces no performance persistence for positive alpha funds and weak evidence of persistence for negative alpha funds.

Capacity Effects and Winner Fund Performance: The Relevance and Interactions of Fund and Family Characteristics

In this paper, we investigate the profitability of characteristics-based mutual fund investment strategies. We analyze the existence of capacity effects on the individual fund level and its interactions with fund flows, family TNA, and family size. Recent studies suggest the existence of diseconomies of scale on the individual fund level while assets under management on the family level may not have detrimental effects for fund performance per se. By analyzing a sample of US equity mutual funds between 1992 and 2007 we provide evidence for performance persistence among recent winner funds. After controlling for fund size, we are able to document positive yet insignificant four-factor alphas for the sub-group of small winner funds. When net inflows into these funds are additionally considered, an investment strategy buying small winner funds with below median inflows yields significantly positive four-factor alphas of 2.76 percent per year. Moreover, if the fund family manages few other funds in the same segment, small winner funds weakly outperform the four-factor benchmark by 2.40 percent per year. In contrast, family TNA only provides sufficient information for selecting persistent outperformers among the subset of extremely small winner funds. Overall, the results are rather consistent with the divergence of scale effects on the fund and family level, respectively, and suggest the presence of organizational complexity costs and agency conflicts in large fund families.

Capacity Effects and Winner Fund Performance: The Relevance and Interactions of Fund and Family Characteristics

In this paper, we investigate the profitability of characteristics-based mutual fund investment strategies. We analyze the existence of capacity effects on the individual fund level and its interactions with fund flows, family TNA, and family size. Recent studies suggest the existence of diseconomies of scale on the individual fund level while assets under management on the family level may not have detrimental effects for fund performance per se. By analyzing a sample of US equity mutual funds between 1992 and 2007 we provide evidence for performance persistence among recent winner funds. After controlling for fund size, we are able to document positive yet insignificant four-factor alphas for the sub-group of small winner funds. When net inflows into these funds are additionally considered, an investment strategy buying small winner funds with below median inflows yields significantly positive four-factor alphas of 2.76 percent per year. Moreover, if the fund family manages few other funds in the same segment, small winner funds weakly outperform the four-factor benchmark by 2.40 percent per year. In contrast, family TNA only provides sufficient information for selecting persistent outperformers among the subset of extremely small winner funds. Overall, the results are rather consistent with the divergence of scale effects on the fund and family level, respectively, and suggest the presence of organizational complexity costs and agency conflicts in large fund families.

Risk Tolerance, Marketing Information and Investment Decision Makings Under Loss Aversion: Theory and Evidence

This study models and examines how changes in marketing information affects the degree of investor’s risk aversion, and in turn, influences investor’s decision-makings process under uncertainty. Under the mixed assumptions, the theoretical evidence in this study indicates that cumulative prospect theory (CPT) investors have propensity to discipline their depreciated assets and to sell their appreciated assets. Further, I find that CPT investors have less incentive to sell their holdings with higher advertising than ones with lower advertising when facing a paper gain or a paper loss. The empirical evidence indicates that advertising can help funds stem cash outflows, and finds investors are less willing to sell high performing investments with high fund family advertising than investments with low fund family advertising, and are more reluctant to redeem losing mutual funds with high fund family advertising than funds with low fund family advertising. For loser funds, a possible explanation from this study is that advertising seems to re-enforce the efficacy of recent investor decisions and adjust their beliefs to confirm past decisions, thus lets investors have more incentive to continue holding losing funds. For winner funds, this study infers that advertising may signal product quality, increase consumer satisfaction, brand equity and consumer loyalty that lead investors satisfied with their past decisions to have a greater propensity to retain their winning investments.

On the performance of emerging market equity mutual funds

We document persistence in the performance of emerging market equity funds and find several notable differences compared to US equity funds. First, the contribution of winner funds to the return spread between winner and losers is substantially larger for emerging market funds. Second, only a small portion of the return spread between winners and losers can be attributed to momentum effects in emerging markets. Third, winner funds in emerging markets generate returns that are sufficiently large enough to cover their expenses. Overall, our findings suggest that emerging market funds generally display better performance than US funds.

Why Does Mutual Fund Performance Not Persist? The Impact and Interaction of Fund Flows and Manager Changes

We explain the lack of long-term performance persistence by actively managed U.S. equitymutual funds in terms of two equilibrating mechanisms: fund flows and manager changes. Wefind that these mechanisms acting together affect the future performance of past outperforming(winner) funds and past underperforming (loser) funds. Fund flows in isolation have a significanteffect on performance, whereas manager changes in isolation have only a limited effect. Acombination of both fund flows and manager changes has a substantial impact on future fundperformance. If neither of these equilibrating mechanisms is operating, winner funds continue to significantly outperform loser funds by 4.08 percentage points per annum. However, the difference between winner and loser funds declines to almost zero if the two mechanisms are acting together. We also document that managers of winner funds increase risk, while managers of loser funds reduce risk, although losers who are fired took more risk than losers who keep theirjobs.

Mutual Fund Performance: Measurement and Evidence1

The paper provides a critical review of empirical findings on the performance of mutual funds, mainly for the US and UK. Ex‐post, there are around 0‐5% of top performing UK and US equity mutual funds with truly positive‐alpha performance (after fees) and around 20% of funds that have truly poor alpha performance, with about 75% of active funds which are effectively zero‐alpha funds. Key drivers of relative performance are, load fees, expenses and turnover. There is little evidence of successful market timing. Evidence suggests past winner funds persist, when rebalancing is frequent (i.e., less than one year) and when using sophisticated sorting rules (e.g., Bayesian approaches) ‐ but transactions costs (load and advisory fees) imply that economic gains to investors from winner funds may be marginal. The US evidence clearly supports the view that past loser funds remain losers. Broadly speaking results for bond mutual funds are similar to those for equity funds. Sensible advice for most investors would be to hold low cost index funds and avoid holding past ‘active’ loser funds. Only sophisticated investors should pursue an active ex‐ante investment strategy of trying to pick winners ‐ and then with much caution.

Persistence and the four‐factor model in the Australian funds market: a note

AbstractWe investigate whether Australian fund managers are able to deliver persistent performance using Carhart’s (1997) four‐factor model. Short‐ and long‐term persistence is examined and the sample is also divided into unit trusts and superannuation funds. We do not find evidence of persistence in any sample of funds. We find that winner (loser) funds tend to hold past winner (loser) stocks. Winner and loser unit trusts both appear to have positive exposure to small stocks.

On the Performance of Emerging Market Equity Mutual Funds

We document persistence in the performance of emerging market equity funds and find some notable differences compared to US funds. First, the contribution of winner funds to the return spread between winner and losers is substantially larger for emerging market funds. Second, only a small portion of the return spread between winners and losers can be attributed to momentum effects in emerging markets. Third, while US winner funds have been documented to underperform benchmark factors correcting for size, value and momentum effects by the magnitude of their expenses, winner funds in emerging markets generate returns that are sufficiently large enough to cover their expenses. Overall, our findings suggest that emerging market funds generally display better performance than US funds.

Incentives and Mutual Fund Performance: Higher Performance or Just Higher Risk Taking?

We study the impact of contractual incentives on the performance of mutual funds. We find that high-incentive contracts induce managers to take more risk and reduce the funds' probability of survival. Yet, funds with high-incentive contracts deliver higher risk-adjusted return, and the superior performance remains persistent. The top incentive quintile of funds outperforms the bottom quintile by 2.70% per year. Moreover, high-incentive winner funds from one year have a positive alpha of 0.41% per month in the following year. Focusing on funds' holdings, we show that active portfolio rebalancing is the main channel through which incentives increase performance. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

False Discoveries: Winners and Losers in Mutual Fund Performance

We use a multiple hypothesis testing framework to estimate the false discovery rate (FDR) amongst UK equity mutual funds. For all funds, we find a relatively high FDR for the best funds of 67% (at a 10% significance level), which indicates that only around 2% of all funds truly outperform their benchmarks. For the worst funds the FDR (at a 10% significance level), is relatively small at 15.9% which results in 20% of funds which truly underperform their benchmarks. For different investment styles, this pattern of very few genuine winner funds is repeated for all companies, small companies and equity income funds. However, forming portfolios of funds based on a set of funds for which the FDR is relatively low, produces positive alphas.

UK mutual fund performance: Skill or luck?

Using a comprehensive data set on (surviving and non-surviving) UK equity mutual funds, we use a cross-section bootstrap methodology to distinguish between ‘skill’ and ‘luck’ for individual funds. This methodology allows for non-normality in the idiosyncratic risk of the funds — a major issue when considering those funds which appear to be either very good or very bad performers, since these are the funds which investors are primarily interested in identifying. Our study points to the existence of stock picking ability among a relatively small number of top performing UK equity mutual funds (i.e. performance which is not solely due to good luck). At the negative end of the performance scale, our analysis strongly rejects the hypothesis that most poor performing funds are merely unlucky. Most of these funds demonstrate ‘bad skill’. Recursive estimation and Kalman ‘smoothed’ coefficients indicate temporal stability in the ex-post performance alpha's of winner and loser portfolios. We also find performance persistence amongst loser but not amongst winner funds.

Incentives and Mutual Fund Performance: Higher Performance or Just Higher Risk Taking?

We study the impact of contractual incentives on the risk-taking behavior and the performance of US mutual funds. We measure incentives using the shape, i.e. concavity, of the fee structure in the advisory contract. Compared to the standard linear fee structure, a concave structure should create a disincentive to take more risk. Our results show that a high incentive contract induces managers to take more risk and reduces the funds' probability of survival. On the other hand, high-incentive funds deliver higher return. The net of these two effects is that incentives increase the risk-adjusted performance of the fund. In particular, the top incentive quintile of funds outperforms the bottom incentive quintile by about 2.7 percent per year. Moreover, the performance of the high-incentive funds is highly persistent. High-incentive winner funds from one year have a positive alpha of 41 basis points per month in the following year. By focusing on the funds' holdings, we show that active portfolio rebalancing is the main channel through which incentives increase performance.