Managerial Sharing, Mutual Fund Connections, and Performance

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Journal Article
International Review of Finance, 2015, 15 (3), pp. 427 - 455
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© 2015 International Review of Finance Ltd. In this study, we examine the effect of mutual fund connections, through managerial sharing, on performance and stock holding commonalities. Our analysis of return correlations and portfolio holdings indicates that more interconnected funds tend to buy and sell similar stocks, hence increasing the similarity of portfolio holdings and undermining the distinctiveness of their investment strategy. Our results also indicate that highly connected funds significantly underperform weakly connected funds by about 1.4% on a yearly risk-adjusted basis. We show that fund family performance is unaffected by the intensity of fund connections, and that greater fund connections could significantly enhance family-level profit margins.
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