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Characteristics of Mutual Fund Portfolios: Where Are the Value Funds?

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  • Lettau, Martin
  • Ludvigson, Sydney
  • Manoel, Paulo

Abstract

This paper provides a comprehensive analysis of portfolios of active mutual funds, ETFs and hedge funds through the lens of risk (anomaly) factors. We show that that these funds do not systematically tilt their portfolios towards profitable factors, such as high book-to-market (BM) ratios, high momentum, small size, high profitability and low investment growth. Strikingly, there are virtually no high-BM funds in our sample while there are many low-BM “growth†funds. Portfolios of “growth†funds are concentrated in low BM-stocks but “value†funds hold stocks across the entire BM spectrum In fact, most “value†funds hold a higher proportion of their portfolios in low-BM (“growth†) stocks than in high-BM (“value†) stocks. While there are some micro/small/mid-cap funds, the vast majority of mutual funds hold very large stocks. But the distributions of mutual fund momentum, profitability and investment growth are concentrated around market average with little variation across funds. The characteristics distributions of ETFs and hedge funds do not differ significantly from the those of mutual funds. We conclude that the characteristics of mutual fund portfolios raises a number of questions about why funds do not exploit well-known return premia and how their portfolio choices affects asset prices in equilibrium.

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  • Lettau, Martin & Ludvigson, Sydney & Manoel, Paulo, 2018. "Characteristics of Mutual Fund Portfolios: Where Are the Value Funds?," CEPR Discussion Papers 13395, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13395
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    1. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, May.
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    7. Berk, Jonathan B. & van Binsbergen, Jules H., 2015. "Measuring skill in the mutual fund industry," Journal of Financial Economics, Elsevier, vol. 118(1), pages 1-20.
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    13. Vikas Agarwal & Vyacheslav Fos & Wei Jiang, 2013. "Inferring Reporting-Related Biases in Hedge Fund Databases from Hedge Fund Equity Holdings," Management Science, INFORMS, vol. 59(6), pages 1271-1289, June.
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    1. Monitoring the Monitors
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2019-11-11 12:47:22

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    Cited by:

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    4. Patton, Andrew J. & Weller, Brian M., 2020. "What you see is not what you get: The costs of trading market anomalies," Journal of Financial Economics, Elsevier, vol. 137(2), pages 515-549.
    5. Peng, Cameron & Wang, Chen, 2021. "Factor demand and factor returns," LSE Research Online Documents on Economics 118884, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Mutual funds; Characteristics; Value puzzle; Portfolio composition; Anomalies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services

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