Mutual Fund Portfolio Manager Structures: Attributes, Implications, and Performance

Abstract

The purposes of this study are to review how mutual fund portfolio manager structures—and their attributes and implications—impact fund risk and return performance. For example, retail investors in actively managed mutual funds are often characterized as “dumb investors chasing past performance,” but evidence finds the opposite is true. Investors are able to identify skilled portfolio managers, but the average investor’s net alpha is significantly negative. There is thus no evidence that investors share in returns provided by manager skill. Again, why do investors who can identify skilled managers in actively managed funds continue to be satisfied with below-market returns?