Why Some Funds Succeed and Others Don’t

Morningstar researchers analyzed the historical correlations between both forward risk-adjusted returns and forward cumulative fund flows for more than 57,000 unique funds, evaluating success factors and common pitfalls for newly launched funds.

Nelly Poon 04.08.2016
Facebook Twitter LinkedIn

Morningstar recently published a quantitative research report, “The Rise and Fall of New Funds,” which explores the relationship between observed investor preferences for and eventual investor outcomes in newly launched funds. Morningstar researchers analyzed the historical correlations between both forward risk-adjusted returns and forward cumulative fund flows for more than 57,000 unique funds, evaluating success factors and common pitfalls for newly launched funds.

A few key takeaways of the research report include:

  • Frequent portfolio disclosure correlates with higher flows and higher risk-adjusted returns: Portfolio disclosure within the first year can generate an average of 2.7 percent, 7.6 percent, and 9.7 percent increase in category flow percentiles for equity, fixed-income, and allocation categories, respectively.
  • Managers who invest in their funds have historically performed better and garnered more assets: A typical equity fund will have, on average, 5.5 percent higher risk-adjusted returns and will move up its percentile rank for flows within its category by 6.5 percent. For fixed-income and allocation funds, there are 1.9 percent and 4.0 percent increases in risk-adjusted returns, moving up the funds’ percentile rank for flows by 6.9 percent and 8.9 percent, respectively.
  • Female portfolio managers have received higher flows in equity and fixed-income asset classes, but not in allocation.
  • High fees hurt both future flows and future risk-adjusted returns: A category’s most expensive fund could lose out on 3 percent in terms of risk-adjusted returns for equity and allocation funds compared with the cheapest fund.
  • A cannibalization effect exists at firms that launch multiple products at once: When a firm changes practices from launching the most funds in an asset class to launching the least amount, the individual funds gain 16.4, 9.6, and 16.2 percentiles in higher category flows for equity, fixed-income, and allocation asset classes, respectively.

 

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Member.

Register For Free
Facebook Twitter LinkedIn

About Author

Nelly Poon  Nelly Poon is an editor with Morningstar.

© Copyright 2021 Morningstar Asia Ltd. All rights reserved.

Terms of Use        Privacy Policy        Cookies