Skip to main content
placeholder image

Portfolio quality and mutual fund performance

Journal Article


Download full-text (Open Access)

Abstract


  • This study investigates how the quality of stocks owned by mutual funds affects the performance of those funds during 2000-2009. The quality of a stock is positively related to its size, while quality is inversely related to volatility. Evidently, stocks in the lowest quality decile perform particularly poorly amidst volatile market conditions with a mean monthly Daniel, Grinblatt, Titman and Wermers (DGTW) alpha 1.93% [25.73% per annum (pa)] less than high-quality stocks. Furthermore, funds which hold the lowest quality stocks exhibit substantial underperformance, particularly during market downturns, with funds in the lowest decile of quality incurring a mean monthly DGTW alpha 0.96% (12.14% pa) lower than their higher quality counterparts. Interestingly, we discover a trend to funds investing in higher quality stocks over time.

Authors


  •   Gallagher, David R. (external author)
  •   Gardner, Peter A. (external author)
  •   Schmidt, Camille (external author)
  •   Walter, Terry S.

Publication Date


  • 2014

Citation


  • Gallagher, D. R., Gardner, P. A., Schmidt, C. H. & Walter, T. S. (2014). Portfolio quality and mutual fund performance. International Review of Finance, 14 (4), 485-521.

Scopus Eid


  • 2-s2.0-84911183251

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=2193&context=buspapers

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1186

Has Global Citation Frequency


Number Of Pages


  • 36

Start Page


  • 485

End Page


  • 521

Volume


  • 14

Issue


  • 4

Place Of Publication


  • Australia

Abstract


  • This study investigates how the quality of stocks owned by mutual funds affects the performance of those funds during 2000-2009. The quality of a stock is positively related to its size, while quality is inversely related to volatility. Evidently, stocks in the lowest quality decile perform particularly poorly amidst volatile market conditions with a mean monthly Daniel, Grinblatt, Titman and Wermers (DGTW) alpha 1.93% [25.73% per annum (pa)] less than high-quality stocks. Furthermore, funds which hold the lowest quality stocks exhibit substantial underperformance, particularly during market downturns, with funds in the lowest decile of quality incurring a mean monthly DGTW alpha 0.96% (12.14% pa) lower than their higher quality counterparts. Interestingly, we discover a trend to funds investing in higher quality stocks over time.

Authors


  •   Gallagher, David R. (external author)
  •   Gardner, Peter A. (external author)
  •   Schmidt, Camille (external author)
  •   Walter, Terry S.

Publication Date


  • 2014

Citation


  • Gallagher, D. R., Gardner, P. A., Schmidt, C. H. & Walter, T. S. (2014). Portfolio quality and mutual fund performance. International Review of Finance, 14 (4), 485-521.

Scopus Eid


  • 2-s2.0-84911183251

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=2193&context=buspapers

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1186

Has Global Citation Frequency


Number Of Pages


  • 36

Start Page


  • 485

End Page


  • 521

Volume


  • 14

Issue


  • 4

Place Of Publication


  • Australia