An analysis of portfolio management structures within mutual funds
Funds choose a management structure in which a team or an individual is in charge of investment decisions. If there is a difference between types of decision-making structure, it should be measurable using information about the vast number of mutual funds that is publicly available to investors. The differences related to management structure can manifest themselves through related fund characteristics such as differences in performance, risk and expenses. Additionally, investor preference for management structure can be measured through the assets they move to or from funds (called fund flow). To date, a handful of studies have attempted to address the question of management structure superiority within mutual funds with varying outcomes. My study adds to the literature by conducting two distinct studies, a cross-section analysis and an event-study, to address differences between not only individuals and teams in general, but between teams of different naming convention. This study finds cross-sectional characteristic differences between management structures. These differences, however, are not unified for all types of teams, and individually-managed funds do not stand apart from the entire universe of team-led funds. Non-named teams stand out as being most different from individually managed funds. with some evidence of superior future performance. As well, non-named management structures tend to be younger with smaller total net assets. Using traditional multi-sort matching techniques as well as a propensity score matching technique, the event study finds that there is weak evidence of abnormal fund flows by investors, as well as changes in fund characteristics, around the event of a fund changing its management structure. Investors may tend to reward funds that change to teams and penalize funds that change to individual managers. This finding is not robust to matching techniques, nor type of management team, however. The changes in fund characteristics around the events show that worse performance and higher expenses are associated with both kinds of management structure changes -- not just those that change to an individual or to a team. Therefore, instead of asking which kind of change in management structure is superior, perhaps investors should be avoiding all funds that change management structure. This paper sheds light on the fact that all team-led funds are not equal in characteristics and therefore team-type should be controlled for in mutual fund studies involving management structure.