Mutual Fund Performance and the Incentive to Generate Alpha

Financial economists have long been puzzled by investor demand for actively managed funds that generate, on average, negative after-fee, risk-adjusted returns. To shed new light on this puzzle, we exploit the fact that funds in different market segments compete for different types of retail investors. Within the segment of funds marketed directly to retail investors, we find that flows chase risk-adjusted returns, and that funds respond by investing more in active management. Importantly, within this direct-sold segment, we find little evidence that actively managed funds underperform index funds. In contrast, within the segment of funds sold through brokers, which we demonstrate face a weaker incentive to generate alpha, we find that actively managed funds significantly underperform index funds. We conclude that the well-known underperformance of the average actively managed fund in the full sample is driven by the large fraction of funds with weak incentives to identify and motivate skilled managers.

The determinants of the flow of funds of managed portfolios: mutual funds versus pension funds

Due to differences in financial sophistication and agency relationships, we posit that investors use different criteria to select portfolio managers in the retail mutual fund and fiduciary pension fund industry segments. We provide evidence on investors’ manager selection criteria by estimating the relation between manager asset flow and performance. We find that pension fund clients use quantitatively sophisticated measures like Jensen’s alpha, tracking error, and outperformance of a market benchmark. Pension clients also punish poorly performing managers by withdrawing assets under management. In contrast, mutual fund investors use raw return performance and flock disproportionately to recent winners but do not withdraw assets from recent losers. Mutual fund manager flow is significantly positively related to Jensen’s alpha, a seemingly anomalous result in light of a relatively unsophisticated mutual fund client base. We provide preliminary evidence, however, that this relation is driven by a high correlation between Jensen’s alpha and widely available summary performance measures, such as Morningstar’s star rating. By documenting differences in the flow-performance relation, we contribute to the growing literature linking fund manager behavior to the implicit incentives to increase assets under management. We show that several forces combine to weaken the incentive for pension fund managers to engage in the type of risk-shifting behavior identified in the mutual fund literature.Mutual funds ; Pensions ; Investments

Optimal amplification of streamwise streaks in plane jets and their stabilizing effect on the inflectional instability

Optimal transient energy growths supported by the plane Bickley jet are computed for a set of spanwise wavenumbers and Reynolds numbers. It is shown that the maximum energy amplification is proportional to the square of the Reynolds number. The computed optimal streamwise vortices are then used to efficiently force finite amplitude streaks that are shown to stabilize the jet's powerful inflectional instability, which is clearly relevant for a number of applications in the control of free shear flows

Star power: the effect of Morningstar ratings on mutual fund flows

Morningstar, Inc., has been hailed in both academic and practitioner circles as having the most influential rating system in the mutual fund industry. We investigate Morningstar’s influence by estimating the value of a star in terms of the asset flow it generates for the typical fund. We use event-study methods on a sample of 3,388 domestic equity mutual funds from November 1996 to October 1999 to isolate the “Morningstar effect” from other influences on fund flow. ; We separately study initial rating events, whereby a fund is rated for the first time on its 36-month anniversary, and rating change events. An initial five-star rating results in average six-month abnormal flow of $26 million, or 53 percent above normal expected flow. Following rating changes, we find economically and statistically significant abnormal flow in the expected direction, positive for rating upgrades and negative for rating downgrades. Furthermore, we observe an immediate flow response, suggesting that some investors vigilantly monitor this information and view the rating change as “new” information on fund quality. Overall, our results indicate that Morningstar ratings have unique power to affect asset flow.Mutual funds

Análisis de consecuencias por la prohibición de operar aeronaves a pistón en el aeropuerto Eldorado

El presente análisis aplicado ha sido elaborado con el fin de dar a conocer la problemática que han presentado las empresas de transporte aéreo comercial no regular con base operativa en la ciudad de Bogotá en el aeropuerto Eldorado, las cuales tienen entre su flota aérea aeronaves con motor a pistón que ahora tienen la prohibición de operar en este aeropuerto. Es importante recordar que el estado colombiano debe garantizar la libre competencia para las pequeñas, medianas y grandes empresas y con esta prohibición perjudican no solo a las empresas si no también a los usuarios de este tipo de aeronaves que en muchas ocasiones son usuarios que se desplazan de lugares remotos de la geografía colombiana de difícil acceso con pistas cortas y rudimentarias a donde solo puede aterrizar una aeronave pequeña que en su mayoría funcionan con motores a pistón. Se realizó un estudio descriptivo y el método de investigación fue deductivo.This analysis applied has been prepared in order to publicize the problems firms have submitted non-scheduled commercial air with operational base in the town of Eldorado Airport in Bogota, which are among its aircraft engine aircraft piston now are prohibited from operating in this airport. It is important to remember that the Colombian state must ensure fair competition for small, medium and large companies and ban harmful not only to companies but also users of this type of aircraft are often mobile users remote places of Colombia inaccessible geography with short and rudimentary to where only you can land a small aircraft powered mostly piston engines tracks. A descriptive study was carried out using the deductive research methods

Optimal perturbations of non-parallel wakes and their stabilizing effect on the global instability

We compute the spatial optimal energy amplification of steady inflow perturbations in a non-parallel wake and analyse their stabilizing action on the global mode instability. The optimal inflow perturbations, which are assumed spanwise periodic and varicose, consist in streamwise vortices that induce the downstream spatial transient growth of streamwise streaks. The maximum energy amplification of the streaks increases with the spanwise wavelength of the perturbations, in accordance with previous results obtained for the temporal energy growth supported by parallel wakes. A family of increasingly streaky wakes is obtained by forcing optimal inflow perturbations of increasing amplitude and then solving the nonlinear Navier-Stokes equations. We show that the linear global instability of the wake can be completely suppressed by forcing optimal perturbations of sufficiently large amplitude. The attenuation and suppression of self-sustained oscillations in the wake by optimal 3D perturbations is confirmed by fully nonlinear numerical simulations. We also show that the amplitude of optimal spanwise periodic (3D) perturbations of the basic flow required to stabilize the global instability is much smaller than the one required by spanwise uniform (2D) perturbations despite the fact that the first order sensitivity of the global eigenvalue to basic flow modifications is zero for 3D spanwise periodic modifications and non-zero for 2D modifications. We therefore conclude that first-order sensitivity analyses can be misleading if used far from the instability threshold, where higher order terms are the most relevan

Optimal streaks in the circular cylinder wake and suppression of the global instability

The steady, spanwise-periodic, symmetric (varicose) optimal blowing and suction that maximizes energy amplification in the circular cylinder wake is computed at Reynolds numbers ranging from 50 to 100. It is found that the cylinder wake can sustain large energy amplifications that are associated with the generation by the optimal blowing and suction of streamwise vortices near the cylinder, which then induce the transient spatial growth of high-energy streamwise streaks further downstream. The most amplified perturbations have spanwise wavelengths ranging from five to seven times the cylinder diameter at the Reynolds numbers considered, with the corresponding optimal streaks reaching their maximum amplitude in the near wake, inside the pocket of absolute instability which sustains the global instability. The optimal blowing and suction is shown to stabilize the global linear instability. The most stabilizing spanwise wavelengths are in good agreement with previous findings. The amplitude of optimal blowing and suction required to suppress the global instability decreases when the Reynolds number Re is increased from 75 to 100. This trend reveals the key role played by the non-normal amplification of the streaks in the stabilization process, which is able to overcome the increase of the uncontrolled global growth rate with Re. Finally, it is shown that the global instability can be suppressed with control amplitudes smaller than those required by 2-D (spanwise-uniform) control. This result is not what would be expected from first-order sensitivity analyses, which predict a zero sensitivity of the global instability to spanwise-periodic control and, in general, a non-zero sensitivity to spanwise-uniform control

Stabilizing effect of optimally amplified streaks in parallel wakes

We show that optimal perturbations artificially forced in parallel wakes can be used to completely suppress the absolute instability and to reduce the maximum temporal growth rate of the inflectional instability. To this end we compute optimal transient energy growths of stable streamwise uniform perturbations supported by a parallel wake for a set of Reynolds numbers and spanwise wavenumbers. The maximum growth rates are shown to be proportional to the square of the Reynolds number and to increase with spanwise wavelengths with sinuous perturbations slightly more amplified than varicose ones. Optimal initial conditions consist of streamwise vortices and the optimally amplified perturbations are streamwise streaks. Families of nonlinear streaky wakes are then computed by direct numerical simulation using optimal initial vortices of increasing amplitude as initial conditions. The stabilizing effect of nonlinear streaks on temporal and spatiotemporal growth rates is then determined by analysing the linear impulse response supported by the maximum amplitude streaky wakes profiles. This analysis reveals that at Re=50, streaks of spanwise amplitude As≈8%U∞ can completely suppress the absolute instability, converting it into a convective instability. The sensitivity of the absolute and maximum temporal growth rates to streak amplitudes is found to be quadratic, as has been recently predicted. As the sensitivity to two-dimensional (2D, spanwise uniform) perturbations is linear, three-dimensional (3D) perturbations become more effective than the 2D ones only at finite amplitudes. Concerning the investigated cases, 3D perturbations become more effective than the 2D ones for streak amplitudes As≳3%U∞ in reducing the maximum temporal amplification and As≳12%U∞ in reducing the absolute growth rate. However, due to the large optimal energy growths they experience, 3D optimal perturbations are found to be much more efficient than 2D perturbations in terms of initial perturbation amplitudes. Despite their lower maximum transient amplification, varicose streaks are found to be always more effective than sinuous ones in stabilizing the wakes, in accordance with previous findings

Electron beam melting of Ti-6Al-4V lattice structures: correlation between post heat treatment and mechanical properties

Additive manufacturing processes are considered advanced manufacturing methods. It would be possible to produce complex shape components from a computer-aided design model in a layer-by-layer manner. As one of the complex geometries, lattice structures could attract lots of attention for both medical and industrial applications. In these structures, besides cell size and cell type, the microstructure of lattice structures can play a key role in these structures’ mechanical performance. On the other hand, heat treatment has a significant influence on the mechanical properties of the material. Therefore, in this work, the effect of the heat treatments on the microstructure and mechanical behaviour of Ti-6Al-4V lattice structures manufactured by electron beam melting was analysed. The main mechanical properties were compared with the Ashby and Gibson model. It is very interesting to notice that a more homogeneous failure mode was found for the heat-treated samples. The structures’ relative density was the main factor influencing the mechanical performance of the heat-treated samples. It is also found that the heat treatments were able to preserve the stiffness and the compressive strength of the lattice structures. Besides, an increment of both the elongation at failure and the absorbed energy was obtained after the heat treatments. Microstructure analysis of the heat-treated samples confirms the increment of ductility of the heat-treated samples with respect to the as-built one