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This papers main contribution is to extend the literature on fund manager tenure and mutual fund performance over a large sample of mutual funds classified by investment objective. Although several researchers find persistence in mutual fund performance, the results are mixed regarding manager tenure and performance. We extend this research using a larger sample across all investment classifications.
We investigated a sample of 800 equity and bond mutual funds in ten investment categories over ten years and found no relationship between manager tenure and performance. We found a significant negative relationship between manager tenure and turnover, and a marginally significant positive relationship between manager tenure and mutual fund size. The results demonstrate that investors should look beyond manager tenure and consider other investment variables affecting performance, such as consistency of return, investment objective, turnover, expense ratio and fund size.
There have been many studies that have examined the performance of mutual funds over time and the relative performance based upon investment objective. It would be logical to assume that there is a direct correlation between fund performance and portfolio manager experience. If a fund has experienced continued positive performance, one would expect that positive performance to continue as long as the same manager is associated with a particular fund. Although mutual funds have stated investment objectives, the fund manager normally has a significant impact on the selection of the individual securities in a fund's portfolio and, therefore, the risk and return characteristics of the portfolio.
Although there has been continued discussion concerning fund manager tenure, there has been little conclusive research done in this area. Using a sample of 313 funds, Lemak and Satish [1996] found that longerterm managers tend to outperform shorter-term fund managers and that longer-term fund managers construct less risky portfolios. Golec [1996] showed that manager tenure is the most significant predictor of performance. Longer-term (more than seven years) managers have better riskadjusted performance. He also indicated that higher management fees and turnover are positively related to performance, but not significantly so. Khorana [1996] presented evidence of two years of significant underperformance by fund managers who are replaced or terminated. Departing managers exhibit higher portfolio turnover rates and higher expenses relative to nonreplaced managers. Porter and Trifts [1998] found that managers with...