IDEAS home Printed from https://ideas.repec.org/p/bde/wpaper/2518.html
   My bibliography  Save this paper

Index fund flows and fund distribution channels

Author

Listed:
  • Ricardo Barahona

    (BANCO DE ESPAÑA)

Abstract

In the United States, investors leave large amounts of money on the table when investing in index funds. I show that even though high fees strongly predict poor performance, investors have little sensitivity to fees. This can be explained by fund intermediation in the retail sector and the legal standard of care that intermediaries have towards their clients. Net inflows to high-fee funds are higher when brokers and financial advisors receive sales commissions from the investment management company. When funds are sold through intermediaries held to higher standard of care, such as those sold to employer sponsored defined contribution pension plans, this is no longer the case. Together, this evidence suggests imposing fiduciary duties on fund intermediaries improves investor welfare.

Suggested Citation

  • Ricardo Barahona, 2025. "Index fund flows and fund distribution channels," Working Papers 2518, Banco de España.
    • Handle: RePEc:bde:wpaper:2518
    DOI: https://doi.org/10.53479/39443
    as

    Download full text from publisher

    File URL: https://www.bde.es/f/webbe/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/25/Files/dt2518e.pdf
    File Function: First version, April 2025
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.53479/39443?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R., 2007. "Participant reaction and the performance of funds offered by 401(k) plans," Journal of Financial Intermediation, Elsevier, vol. 16(2), pages 249-271, April.
    2. repec:bla:jfinan:v:59:y:2004:i:1:p:261-288 is not listed on IDEAS
    3. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2015. "Scale and skill in active management," Journal of Financial Economics, Elsevier, vol. 116(1), pages 23-45.
    4. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R., 2006. "The adequacy of investment choices offered by 401(k) plans," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1299-1314, August.
    5. Michael J. Cooper & Huseyin Gulen & P. Raghavendra Rau, 2005. "Changing Names with Style: Mutual Fund Name Changes and Their Effects on Fund Flows," Journal of Finance, American Finance Association, vol. 60(6), pages 2825-2858, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Clemens Sialm & Hanjiang Zhang, 2020. "Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 75(2), pages 735-777, April.
    2. Cuthbertson, Keith & Nitzsche, Dirk & O'Sullivan, Niall, 2016. "A review of behavioural and management effects in mutual fund performance," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 162-176.
    3. Clemens Sialm & Laura T. Starks & Hanjiang Zhang, 2015. "Defined Contribution Pension Plans: Sticky or Discerning Money?," Journal of Finance, American Finance Association, vol. 70(2), pages 805-838, April.
    4. Anna (Ania) Zalewska, 2022. "Saving with Group or Individual Personal Pension Schemes: How Much Difference Does It Make?," Management Science, INFORMS, vol. 68(7), pages 5384-5402, July.
    5. Kronlund, Mathias & Pool, Veronika K. & Sialm, Clemens & Stefanescu, Irina, 2021. "Out of sight no more? The effect of fee disclosures on 401(k) investment allocations," Journal of Financial Economics, Elsevier, vol. 141(2), pages 644-668.
    6. Tang, Ning & Mitchell, Olivia S. & Mottola, Gary R. & Utkus, Stephen P., 2010. "The efficiency of sponsor and participant portfolio choices in 401(k) plans," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1073-1085, December.
    7. Zhi Da & Borja Larrain & Clemens Sialm & José Tessada, 2016. "Coordinated Noise Trading: Evidence from Pension Fund Reallocations," NBER Working Papers 22161, National Bureau of Economic Research, Inc.
    8. Ma, Wenchao & Duan, Xiaoman & Tang, Yongjun, 2023. "Enterprise sustainable development and green fund concern: The analysis and test of R&D from listed companies in China," Energy Economics, Elsevier, vol. 121(C).
    9. Chen, Hsuan-Chi & Lai, Christine W. & Wu, Sheng-Ching, 2016. "Mutual fund selection and performance persistence in 401(k) Plans," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 78-100.
    10. Veronika K. Pool & Clemens Sialm & Irina Stefanescu, 2016. "It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans," Journal of Finance, American Finance Association, vol. 71(4), pages 1779-1812, August.
    11. Timothy B. Riley, 2021. "Portfolios of actively managed mutual funds," The Financial Review, Eastern Finance Association, vol. 56(2), pages 205-230, May.
    12. Thomas W. Doellman & Sabuhi H. Sardarli, 2016. "Investment Fees, Net Returns, And Conflict Of Interest In 401(K) Plans," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(1), pages 5-33, March.
    13. David Goldreich & Hanna Hałaburda, 2013. "When Smaller Menus Are Better: Variability in Menu-Setting Ability," Management Science, INFORMS, vol. 59(11), pages 2518-2535, November.
    14. Chua, Angeline Kim Pei & Tam, On Kit, 2020. "The shrouded business of style drift in active mutual funds," Journal of Corporate Finance, Elsevier, vol. 64(C).
    15. Kiran Paudel & Atsuyuki Naka, 2023. "Effects of size on the exchange-traded funds performance," Journal of Asset Management, Palgrave Macmillan, vol. 24(6), pages 474-484, October.
    16. Brian H. Boyer & Taylor D. Nadauld & Keith P. Vorkink & Michael S. Weisbach, 2023. "Discount‐Rate Risk in Private Equity: Evidence from Secondary Market Transactions," Journal of Finance, American Finance Association, vol. 78(2), pages 835-885, April.
    17. Cameron Truong, 2013. "The January effect, does options trading matter?," Australian Journal of Management, Australian School of Business, vol. 38(1), pages 31-48, April.
    18. Chang, Xiaochen & Guo, Songlin & Huang, Junkai, 2022. "Kidnapped mutual funds: Irrational preference of naive investors and fund incentive distortion," International Review of Financial Analysis, Elsevier, vol. 83(C).
    19. Jan Hanousek & Štěpán Jurajda, 2018. "Názvy společností a jejich vliv na výkonnost firem [Corporate Names and Performance]," Politická ekonomie, Prague University of Economics and Business, vol. 2018(6), pages 671-688.
    20. Markus Ibert & Ron Kaniel & Stijn Van Nieuwerburgh & Roine Vestman, 2018. "Are Mutual Fund Managers Paid for Investment Skill?," The Review of Financial Studies, Society for Financial Studies, vol. 31(2), pages 715-772.

    More about this item

    Keywords

    index funds; mutual funds; defined contribution;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:2518. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España (email available below). General contact details of provider: https://edirc.repec.org/data/bdegves.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.