A Look Into Incredible Growth in Sustainable Municipal Debt Issuances
Jayden Sangha
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In this article, we will take a closer look at the nature of...
Furthermore, Greene and Stark found that the newly launched trendy funds do generate statistically significant additional inflows in their first 12 months. For example, they found that “a fund moving from a percentile rank of 80 to a percentile rank of 100 experiences additional inflows of 9.76%.”
They write: “The results for the top trendiness quintile represent gains in flow that are larger than an equally sized move across any of the lower quintiles, where the maximum benefit is 6.06%.” This finding is consistent with prior research related to the importance of investment names, stock tickers and investor preferences, which has shown that “investors flock to mutual funds whose names reflect current trends.”
Unfortunately, the authors also found that these funds underperform over their first five years compared to non-trendy funds, with the trendiest startup funds underperforming the least trendy startup funds by an average of 1.03 percent per year on a risk-adjusted basis. It shouldn’t be a surprise that Greene and Stark concluded their results “suggest that mutual fund launches appear to be motivated by considerations other than skill.” In other words, acting in their own best interests, mutual fund families rationally exploit investor sentiment-based opportunities through the creation of new, trendy funds.
Finally, Greene and Stark found that the “annual expense ratio for trendy funds is 0.201% higher than for non-trendy funds. These results show support for fund sponsors taking advantage of the higher demand for trendy funds and maximizing revenue through their management.”
Keep these findings in mind the next time you are tempted to invest in the latest, hot trend in mutual funds.
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Jayden Sangha
|
In this article, we will take a closer look at the nature of...
Kristan Wojnar, RCC™
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Our subjects for this week center around making decisions, whether to outsource your...
Concerns about inflation have investors looking for safe and robust returns in the...
Mutual Fund Education
Justin Kuepper
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Let's take a closer look at how ESG investments have outperformed during the...
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Daniel Cross
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While CITs and mutual funds share many similarities, there are some key differences...
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Sam Bourgi
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The phrase ‘bear market’ has been thrown around a lot lately, but it...
Furthermore, Greene and Stark found that the newly launched trendy funds do generate statistically significant additional inflows in their first 12 months. For example, they found that “a fund moving from a percentile rank of 80 to a percentile rank of 100 experiences additional inflows of 9.76%.”
They write: “The results for the top trendiness quintile represent gains in flow that are larger than an equally sized move across any of the lower quintiles, where the maximum benefit is 6.06%.” This finding is consistent with prior research related to the importance of investment names, stock tickers and investor preferences, which has shown that “investors flock to mutual funds whose names reflect current trends.”
Unfortunately, the authors also found that these funds underperform over their first five years compared to non-trendy funds, with the trendiest startup funds underperforming the least trendy startup funds by an average of 1.03 percent per year on a risk-adjusted basis. It shouldn’t be a surprise that Greene and Stark concluded their results “suggest that mutual fund launches appear to be motivated by considerations other than skill.” In other words, acting in their own best interests, mutual fund families rationally exploit investor sentiment-based opportunities through the creation of new, trendy funds.
Finally, Greene and Stark found that the “annual expense ratio for trendy funds is 0.201% higher than for non-trendy funds. These results show support for fund sponsors taking advantage of the higher demand for trendy funds and maximizing revenue through their management.”
Keep these findings in mind the next time you are tempted to invest in the latest, hot trend in mutual funds.
Receive email updates about best performers, news, CE accredited webcasts and more.
Jayden Sangha
|
In this article, we will take a closer look at the nature of...
Kristan Wojnar, RCC™
|
Our subjects for this week center around making decisions, whether to outsource your...
Concerns about inflation have investors looking for safe and robust returns in the...
Mutual Fund Education
Justin Kuepper
|
Let's take a closer look at how ESG investments have outperformed during the...
Mutual Fund Education
Daniel Cross
|
While CITs and mutual funds share many similarities, there are some key differences...
Mutual Fund Education
Sam Bourgi
|
The phrase ‘bear market’ has been thrown around a lot lately, but it...