An Analysis of the relationship between the performance and the size of mutual fund
Date Issued
2004
Date
2004
Author(s)
Chen, Pei-Chun
DOI
zh-TW
Abstract
The major focus of this thesis is a discussion of the relationship between the performance and size of mutual funds. The scope for this research includes equity and bond funds. The result of the analysis shows that sales of good-performing equity funds also perform very well. The relationship between the performance and sales is highly correlated. For poor-performing equity funds, although performance and sales results are also related, the degree of correlation is not as high as for good-performing equity funds. The reason for the above results is due to the behavior of mutual funds management companies. Usually, when mutual funds are doing well, management companies will advantageously use this news immediately and promote the funds through all sales channels. Such promotion will typically be reflected by a rise in sales. However, when mutual funds perform poorly, management companies keep silent so that investors have to discover this information for themselves. Although performance of mutual funds is public information, retail investors sometimes neglect such information and take no action. That is the reason for the different correlation levels for these two situations. Research was also done by observing the sales side. We found sales rankings of mutual funds were related to fund performance, with top-selling funds also performing well. However, exceptions made up 20%, as indicated by funds with good sales but poor performance. According to further analysis, we found most of these exceptions were funds with a high percentage dollar-averaging’ regular monthly investment programs. Investors in such programs are usually small, retail investors with an investment focus that emphasizes long-term returns. They are not as likely as large-scale investors to periodically review their investments. Therefore, they usually will not react to performance as soon as large-scale investors. This kind of investor is a very stable business for funds. There is also a reasonable correlation between equity funds with poor sales and poor performance. However, we found that 30% of such funds were exceptions, having poor sales but good performance. According to further analysis, most of these exceptions were managed by companies with a relatively small amount of total fund assets. With limited resources and weak branding, they are often unable to successfully promote their good performing funds.
For bond funds, according to research results, sales and performance are not highly correlated. The major reason is due to the very small difference of investment return for such funds. As a result, little attention is often paid to the difference. Therefore, branding and marketing ability sometimes can mitigate the difference in performance.
Subjects
基金績效
基金規模
Fund Size
Fund Performance
Type
other
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