Title
Actively managed mutual funds holding passive investments: What do ETF positions tell us about mutual fund ability?
Document Type
Article
Publication Title
Journal of Banking and Finance
Publication Date
3-1-2017
Abstract
We provide the first in-depth examination of exchange-traded funds (ETFs) within actively managed mutual fund (AMMF) portfolios to better understand why AMMFs make substantial investments in passive ETFs. We examine the association between holding ETF positions and AMMF performance, as well as indirect measures of performance, including market timing, flow management, and cash holdings. We find that over one-third of AMMFs take an ETF position between 2004 and 2015. Our results indicate that AMMFs allocating large portions of their portfolio to ETFs perform worse, by between 0.41% and 1.63% annually using various performance measures. These AMMFs also exhibit worse market timing and hold more cash. In contrast, AMMFs that hold ETFs in small amounts have similar characteristics to non-user AMMFs. Therefore, the act of holding an ETF does not signal inferior ability, however, taking large ETF positions does.
Volume
76
First Page
48
Last Page
64
DOI
10.1016/j.jbankfin.2016.11.025
Recommended Citation
Sherrill, D., Shirley, S., & Stark, J. (2017). Actively managed mutual funds holding passive investments: What do ETF positions tell us about mutual fund ability?. Journal of Banking and Finance, 76, 48-64. https://doi.org/10.1016/j.jbankfin.2016.11.025
ISSN
03784266
