Fund Flow Diversification
We provide new evidence on the economic benefits to mutual fund families from having a diversified fund flow base. We show that during periods of economic distress diversified fund families with below-median fund flow correlation experience significantly lower net cash outflows, and enjoy greater fee-revenue stability. We also document that fund families with lower cross-fund or cross-style flow correlations are able to price their product offerings more competitively, thereby leading to lower management fees and total operating expenses paid by fund shareholders. Our findings suggest that the diversification of fund families’ asset flows is an important source of net performance gains for fund shareholders. These performance gains arise mostly in the more competitive industry segments where diversified fund families are better incentivized to lower their management fees by leveraging their greater fee-revenue stability, and better protection against investor redemption-related liquidity risk.
Dr Chau Chak Wing Building
