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Management structure and the performance of funds of mutual funds

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  • Bertin, William J.
  • Prather, Laurie
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    Abstract

    A rapidly growing mutual fund category is funds of funds (FOFs) which invest in other mutual funds instead of individual securities. This study reports on FOFs' characteristics and performance relative to traditional equity mutual funds and finds that FOFs compare favorably. FOFs with identified managers outperform their unidentified counterparts, and FOFs that invest in-family outperform both traditional equity funds and those FOFs investing out-of-family. Finally, replicating FOFs' holdings can be prohibitively expensive since they commonly hold funds with high minimum initial investments, closed funds and/or funds that are restricted to a particular investor type.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 62 (2009)
    Issue (Month): 12 (December)
    Pages: 1364-1369

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    Handle: RePEc:eee:jbrese:v:62:y:2009:i:12:p:1364-1369

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    Web page: http://www.elsevier.com/locate/jbusres

    Related research

    Keywords: Fund of funds Mutual funds Fund performance Management structure;

    References

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    1. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "Survivorship Bias and Mutual Fund Performance," Review of Financial Studies, Society for Financial Studies, vol. 9(4), pages 1097-1120.
    2. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2004. "On the Industry Concentration of Actively Managed Equity Mutual Funds," NBER Working Papers 10770, National Bureau of Economic Research, Inc.
    3. Golec, Joseph H., 1996. "The effects of mutual fund managers' characteristics on their portfolio performance, risk and fees," Financial Services Review, Elsevier, vol. 5(2), pages 133-147.
    4. Manakyan, Herman & Liano, Kartono, 1997. "Performance of mutual funds before and after closing to new investors," Financial Services Review, Elsevier, vol. 6(4), pages 257-269.
    5. Eling, Martin & Schuhmacher, Frank, 2007. "Does the choice of performance measure influence the evaluation of hedge funds?," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2632-2647, September.
    6. Smaby, Timothy R. & Fizel, John L., 1995. "Fund closings as a signal to investors: Investment performance of open-end mutual funds that close to new shareholders," Financial Services Review, Elsevier, vol. 4(2), pages 71-80.
    7. Stephen J. Brown & William N. Goetzmann & Bing Liang, 2004. "Fees on Fees in Funds of Funds," Yale School of Management Working Papers ysm18, Yale School of Management.
    8. Payne, Thomas H. & Prather, Laurie & Bertin, William, 1999. "Value Creation and Determinants of Equity Fund Performance," Journal of Business Research, Elsevier, vol. 45(1), pages 69-74, May.
    9. Elton, Edwin J, et al, 1993. "Efficiency with Costly Information: A Reinterpretation of Evidence from Managed Portfolios," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 1-22.
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    12. Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-65, June.
    13. Brown, Stephen J, et al, 1992. "Survivorship Bias in Performance Studies," Review of Financial Studies, Society for Financial Studies, vol. 5(4), pages 553-80.
    14. Friesen, Geoffrey C. & Sapp, Travis R.A., 2007. "Mutual fund flows and investor returns: An empirical examination of fund investor timing ability," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2796-2816, September.
    15. Bruce N. Lehmann & David M. Modest, 1985. "Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," NBER Working Papers 1721, National Bureau of Economic Research, Inc.
    16. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July.
    17. José-Miguel Gaspar & Massimo Massa & Pedro Matos, 2006. "Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization," Journal of Finance, American Finance Association, vol. 61(1), pages 73-104, 02.
    18. Zhao, Xinge, 2004. "Why are some mutual funds closed to new investors?," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1867-1887, August.
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    Cited by:
    1. Juan Carlos Matallín-Sáez & Amparo Soler-Domínguez & Emili Tortosa-Ausina, 2014. "On the robustness of persistence in mutual fund performance," Working Papers 2014/01, Economics Department, Universitat Jaume I, Castellón (Spain).
    2. J. Carlos Matallín-Sáez & Amparo Soler-Domínguez & Emili Tortosa-Ausina, 2013. "Does active management add value? New evidence from a quantile regression," Working Papers 2013/01, Economics Department, Universitat Jaume I, Castellón (Spain).
    3. Amparo Soler Domínguez & Juan Carlos Matallín Sáez & Emili Tortosa-Ausina, 2013. "Does active management add value? New evidence from a quantile regression approach," Working Papers. Serie EC 2013-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    4. Liao, Tsai-Ling & Huang, Chih-Jen & Wu, Chieh-Yuan, 2011. "Do fund managers herd to counter investor sentiment?," Journal of Business Research, Elsevier, vol. 64(2), pages 207-212, February.

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