Mutual fund risk-return profiles: A novel use of triangulation

This paper triangulates with ethnographic content analysis and time series data to discern risk-return profiles for active equity mutual funds. The paper identifies and establishes associations between a variety of investment objectives and risk factors disclosed or otherwise encoded in the prospectus and annual report, and compares risk factors appearing in these documents with levels of risk observed in the time series data. The findings are largely consistent with the predictions of portfolio management models discussed in the literature; however, the triangulation process also reveals critical gaps between what is disclosed in each of the primary narratives and what is observed in the secondary data, ie between what is said and what is done. Risk exposures measured ex post are not always communicated in the documents. For example, the study finds instances of undisclosed pseudo-industry risk in the form of concentrated technology holdings which may reflect a violation of prospectus covenants. The paper also finds elevated levels of residual risk in the secondary data which may be indicative of benchmark gaming.