TY - JOUR
T1 - Cheaper is not better
T2 - On the Superior performance of high-fee mutual funds
AU - Sheng, Jinfei
AU - Simutin, Mikhail
AU - Zhang, Terry
N1 - The Author(s) 2022. Published by Oxford University Press on behalf of The Society for Financial Studies.
All rights reserved.
PY - 2023/6
Y1 - 2023/6
N2 - In contrast with theoretical predictions, high-fee active equity funds generate worse net-ofexpenses performance. We show that this fee-performance puzzle is driven by the preference of high-fee funds for stocks with low operating profitability and high investment rates, characteristics associated with low expected returns. After controlling for exposures to profitability and investment factors, we find high-fee funds significantly outperform low-fee funds before expenses and achieve similarly poor net-of-fees performance. In resolving the feeperformance puzzle, our findings provide support to the theoretical prediction that net alphas are unrelated to fees and challenge the common advice to prefer low-fee funds over high-fee counterparts.
AB - In contrast with theoretical predictions, high-fee active equity funds generate worse net-ofexpenses performance. We show that this fee-performance puzzle is driven by the preference of high-fee funds for stocks with low operating profitability and high investment rates, characteristics associated with low expected returns. After controlling for exposures to profitability and investment factors, we find high-fee funds significantly outperform low-fee funds before expenses and achieve similarly poor net-of-fees performance. In resolving the feeperformance puzzle, our findings provide support to the theoretical prediction that net alphas are unrelated to fees and challenge the common advice to prefer low-fee funds over high-fee counterparts.
UR - http://www.scopus.com/inward/record.url?scp=85145996630&partnerID=8YFLogxK
U2 - 10.1093/rapstu/raac019
DO - 10.1093/rapstu/raac019
M3 - Article
SN - 2045-9920
VL - 13
SP - 375
EP - 404
JO - Review of Asset Pricing Studies
JF - Review of Asset Pricing Studies
IS - 2
ER -