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To Group or Not to Group? Evidence from Mutual Fund Databases

Published online by Cambridge University Press:  31 October 2017

Saurin Patel  and
Sergei Sarkissian
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Abstract

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Despite the overwhelming trend in mutual funds toward team management, empirical studies find no performance benefits for this phenomenon. We show it is caused by large discrepancies in reported managerial structures in Center for Research in Security Prices and Morningstar Principia data sets versus U.S. Securities and Exchange Commission records, resulting in up to 50-basis-points underestimation of the team impact on fund returns. Using more accurate Morningstar Direct data, we find that team-managed funds outperform single-managed funds across various performance metrics. The relation between team size and fund performance is nonlinear. Also, team-managed funds take on no more risk than single-managed funds. Overall, team management benefits fund industry performance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 5 , October 2017 , pp. 1989 - 2021
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1

We appreciate the comments of an anonymous referee, Tim Adam, Laurent Barras, Stephen Brown (the editor), Craig Dunbar, Marcin Kacperczyk, Michael King, Alberto Manconi, Pedro Matos, Jeff Pontiff, Jonathan Reuter, Christopher Schwarz, Laura Starks, Lei Zhang, seminar participants at Bocconi University, Fordham University, Queens University, University of Edinburgh, University of Lethbridge, University of Cambridge, University of Western Ontario, and York University, and participants of the 2012 Luxembourg Asset Management Summit, the 2013 Asian Bureau of Finance and Economic Research meeting, and the 2014 Conference on Recent Advances in Mutual Fund and Hedge Fund Research in Berlin, Germany. Special thanks go to Chloe Fu at the Center for Research in Security Prices (CRSP) and Annette Larson at Morningstar Inc. for discussions on how CRSP and Morningstar collect and update data in their mutual fund products. We acknowledge financial support from the Social Sciences and Humanities Research Council of Canada.

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