Dissection of Mutual Fund Fees, Flows, and Performance
|Speaker:||Douglas Cumming, Schulich School of Business, York University|
|Date:||Tuesday 1 December 2015|
This paper provides a dissection of both mutual fund fees and flows into several categories, and presents evidence that relates specific components of fees to flows, and fees and flows to performance. For stand-alone funds that cannot be purchased directly from fund managers, fees that compensate fund advisors when investors maintain their portfolio positions, and fees that penalize investors for early withdrawal, have a much flatter flow-performance relationship (“flow-performance slope”), and higher flows regardless of past performance (“flow-performance intercept”). Further, the data indicate that flow-performance intercept and slope are significantly negatively and positively, respectively, related to future risk-adjusted performance, which is consistent with the view that flow-performance provides a strong incentive to generate future returns. These findings are quite stable over time, and robust to numerous sensitivity checks. We find some consistency in the evidence but less robust statistical significance amongst the subsamples of direct purchased funds, and among fund-of-funds.