| dc.description.abstract | This paper aims to investigate the relationship between mutual fund performance and the fees charged by money managers, to address whether expensive managers deliver added value to their investors. To conduct this study, we utilize a sample of U.S. mutual funds spanning twenty years. The sample is categorized into four groups based on fee levels: low/below average fees, average fees, above average fees, and high fees. We evaluate the performance of each group using various metrics, including risk-adjusted returns, alpha, and beta. Furthermore, we explore the potential impact of higher fees on a fund's market timing ability and its subsequent effect on performance during periods of financial turmoil.
The results consistently indicate that actively managed funds underperform the market over time. However, an interesting pattern emerges during financial crises, notably in the 2007-2009 financial crisis and the COVID-19 pandemic. In these crisis periods, funds with higher fees exhibit a significant outperformance compared to those with lower fees. Additionally, we find that managers charging higher fees demonstrate stronger market timing abilities than those charging lower fees. These findings provide valuable insights into the relationship between fees and mutual fund performance, shedding light on whether higher returns justify higher fees. | en_US |
