Why does mutual fund performance not persist? The impact and interaction of fund flows and manager changes

This paper investigates the reasons for the lack of long-term persistence in the investment performance of actively managed equity mutual funds. We document that the responses of investors, fund managers, and investment management companies to past performance have an important impact on future performance. Conditioning on fund flows and manager changes allows us to predict future performance of both past outperforming (winner) and past underperforming (loser) funds. Recent winner funds, experiencing neither high inflows nor the departure of a skilled fund manager, outperform by 3.60 percentage points based on risk-adjusted returns in the following year, relative to winner funds suffering from both effects. We also find that the performance of the worst performing funds experiencing both the replacement of the fund manager (internal governance) and high outflows (external governance) enjoy a subsequent increase in performance of 2.40 percentage points in the following year, relative to loser funds not experiencing these effects. Among loser funds, in particular, both mechanisms appear to interact strongly.Mutual Funds; Performance Persistence; Fund Flows; Manager Turnover

Decentralized investment management: evidence from the pension fund industry

The past few decades have seen amajor shift from centralized to decentralized investment management by pension fund sponsors, despite the increased coordination problems that this brings. Using a unique, proprietary dataset of pension sponsors and managers, we identify two secular decentralization trends: sponsors switched (i) from generalist (balanced) to specialist managers across asset classes and (ii) from single to multiple competing managers within each asset class. We study the effect of decentralization on the risk and performance of pension funds, and find evidence supporting some predictions of recent theory on this subject. Specifically, the switch from balanced to specialist managers is motivated by the superior performance of specialists, and the switch from single to multiple managers is driven by sponsors properly anticipating diseconomies-of-scale within an asset class (as funds grow larger) and adding managers with different strategies before performance deteriorates. Indeed, we find that sponsors benefit from alpha diversification when employing multiple fund managers. Interestingly, competition between multiple specialist managers also improves performance, after controlling for size of assets and fund management company-level skill effects. We also study changes in risk-taking when moving to decentralized management. Here, we find that sponsors appear to anticipate the difficulty of coordinating multiple managers by allocating reduced risk budgets to each manager, as predicted by recent theory, which helps to compensate for the suboptimal diversification that results through an improved Sharpe ratio. Overall, our results indicate that pension fund sponsors, at least on average, rationally choose their delegation structures.Decentralized investment management; diversification loss; coordination problems; fund manager skill; pension funds

Ending compulsory annuitisation: what are the consequences?

The seventh in a series of reports that focus on pensions issues of direct relevance to policymakers, financial advisers, and pension scheme members.The Government intends to end the requirement for defined contribution personal pension scheme members to annuitise their pension fund by the age of 75. This report looks at the likely effects and consequences of this policy

“Opening” a New Kind of High School: The Story of the Open High School of Utah

The use of online learning at the primary and secondary school level is growing exponentially in the United States. Much of this growth is with full-time online schools, most of which are operated by for-profit companies that use proprietary online course content. In this article we trace the development of, and philosophy behind, a full-time online school that uses open access software and open educational resources for course content. As more nations begin to put in place plans for primary and secondary education in the event of natural disasters (e.g., the Christchurch earthquakes) or pandemics (e.g., avian flu or H1N1), the availability of open online content is of critical importance

Impact of grain boundary and surface diffusion on predicted fission gas bubble behavior and release in UO2_2 fuel

In this work, we quantify the impact of grain boundary (GB) and surface diffusion on fission gas bubble evolution and fission gas release in UO$_2$ nuclear fuel using simulations with a hybrid phase field/cluster dynamics model. We begin with a comprehensive literature review of uranium vacancy and xenon atom diffusivity in UO$_2$ through the bulk, along GBs, and along surfaces. In our model we represent fast GB and surface diffusion using a heterogeneous diffusivity that is a function of the order parameters that represent bubbles and grains. We find that the GB diffusivity directly impacts the rate of gas release via GB transport, and that the GB diffusivity is likely below 10$^4$ times the lower value from Olander and van Uffelen (2001). We also find that the surface diffusivity impacts bubble coalescence and mobility, and that the bubble surface diffusivity is likely below $10^{-4}$ times the value from Zhou and Olander (1984).Comment: 34 pages, 11 figures, submitted at Journal of Nuclear Materials (Under Review

Why does mutual fund performance not persist? The impact and interaction of fund flows and manager changes

This paper investigates the reasons for the lack of long-term persistence in the investment performance of actively managed equity mutual funds. We document that the responses of investors, fund managers, and investment management companies to past performance have an important impact on future performance. Conditioning on fund flows and manager changes allows us to predict future performance of both past outperforming (winner) and past underperforming (loser) funds. Recent winner funds, experiencing neither high inflows nor the departure of a skilled fund manager, outperform by 3.60 percentage points based on risk-adjusted returns in the following year, relative to winner funds suffering from both effects. We also find that the performance of the worst performing funds experiencing both the replacement of the fund manager (internal governance) and high outflows (external governance) enjoy a subsequent increase in performance of 2.40 percentage points in the following year, relative to loser funds not experiencing these effects. Among loser funds, in particular, both mechanisms appear to interact strongly

New Evidence on Mutual Fund Performance: A Comparison of Alternative Bootstrap Methods

We compare two bootstrap methods for assessing mutual fund performance. Kosowski, Timmermann, Wermers and White (2006) produces narrow confidence intervals due to pooling over time, while Fama and French (2010) produces wider confidence intervals because it preserves the cross-correlation of fund returns. We then show that the average UK equity mutual fund manager is unable to deliver outperformance net of fees under either bootstrap. Gross of fees, 95% of fund managers on the basis of the first bootstrap and all fund managers on the basis of the second bootstrap fail to outperform the luck distribution of gross returns

Physics-based multiscale coupling for full core nuclear reactor simulation

Numerical simulation of nuclear reactors is a key technology in the quest for improvements in efficiency, safety, and reliability of both existing and future reactor designs. Historically, simulation of an entire reactor was accomplished by linking together multiple existing codes that each simulated a subset of the relevant multiphysics phenomena. Recent advances in the MOOSE (Multiphysics Object Oriented Simulation Environment) framework have enabled a new approach: multiple domain-specific applications, all built on the same software framework, are efficiently linked to create a cohesive application. This is accomplished with a flexible coupling capability that allows for a variety of different data exchanges to occur simultaneously on high performance parallel computational hardware. Examples based on the KAIST-3A benchmark core, as well as a simplified Westinghouse AP-1000 configuration, demonstrate the power of this new framework for tackling—in a coupled, multiscale manner—crucial reactor phenomena such as CRUD-induced power shift and fuel shuffle.Massachusetts Institute of Technology. Department of Nuclear Science and EngineeringIdaho National Laboratory (Contract DE-AC07-05ID14517

Making the Earth: Combining Dynamics and Chemistry in the Solar System

No terrestrial planet formation simulation completed to date has considered the detailed chemical composition of the planets produced. While many have considered possible water contents and late veneer compositions, none have examined the bulk elemental abundances of the planets produced as an important check of formation models. Here we report on the first study of this type. Bulk elemental abundances based on disk equilibrium studies have been determined for the simulated terrestrial planets of O'Brien et al. (2006). These abundances are in excellent agreement with observed planetary values, indicating that the models of O'Brien et al. (2006) are successfully producing planets comparable to those of the Solar System in terms of both their dynamical and chemical properties. Significant amounts of water are accreted in the present simulations, implying that the terrestrial planets form "wet" and do not need significant water delivery from other sources. Under the assumption of equilibrium controlled chemistry, the biogenic species N and C still need to be delivered to the Earth as they are not accreted in significant proportions during the formation process. Negligible solar photospheric pollution is produced by the planetary formation process. Assuming similar levels of pollution in other planetary systems, this in turn implies that the high metallicity trend observed in extrasolar planetary systems is in fact primordial.Comment: 61 pages (including online material), 12 figures (7 in paper, 5 online). Accepted to Icaru