Mutual Fund Manager Education Background and Activeness

Abstract

Some active mutual funds are more active than others. Indeed, research finds that many so-called active funds are not nearly as active as they appear because they each hold a portfolio that can be quite similar to the benchmark index. Furthermore, in general, research indicates that funds that are consistently active (i.e., hold a portfolio that is quite different from the benchmark) but take positions that are sufficiently well diversified across industries (i.e., do not have high tracking error) may have better risk-adjusted performance. Given the importance of an active fund being truly active, this article tries to predict a fund’s activeness by examining mutual fund manager educational characteristics. After controlling for many factors, including the firm at which the fund is located, the finding is that funds with managers who attend undergraduate schools with higher mean SAT scores are significantly more active than the funds of other managers. However, apart from this variable, other educational variables do not help explain fund activeness.

TOPICS: Mutual fund performance, performance measurement, manager selection