Competition in the U.S. Mutual Fund Industry: A performance evaluation of actively managed domestic equity mutual funds
Sammanfattning: I evaluate a total of 204 U.S. equity mutual funds split into one major group and one additional group for the time period 2002-2016. The major group consists of the ten largest U.S. mutual fund families based on AUM while the additional group consists of a sample of the remaining operative U.S. mutual fund families. The major group manages 58% of U.S. mutual fund supply, thus indicating a non-competitive market structure. By comparing the performances of these two particular groups, I investigate whether the current market structure within the U.S. mutual fund industry is beneficial from the point of view of U.S. investors. That is, is their aggregated private wealth efficiently invested considering that as few as ten U.S. mutual fund families are managing the majority of it? Or would they experience an increased yield if they rather reallocated it into the additional fund families? Moreover, I benchmark the performance of each group to adequate market indices in order to investigate whether the active management pays off. I find that out of my 28 regressions, eight yield alphas statistically significantly different from zero at the 1% level. Additionally, when comparing each group´s mean alpha to each other, I find a statistically significant difference for large value stocks net of fees to a significance of 99%. These findings combined suggest that the major group perform superior to the additional group and which accordingly justifies the fact that the major group manage the majority of U.S. mutual fund supply. My findings further support the fact, although with varying levels of statistical significance, that the active management by the two groups is generally not worth paying for since the fees exceed the beta-adjusted excess returns, interpreted as the actively managed mutual funds outperform the market on a gross level but once the fees are paid the net alphas inversely underperform the market. This tendency within the performance of mutual funds is in line with previous research.
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