Building a diversified portfolio : the impact of diversity on U.S. mutual fund manager performance : an examination of differences in risk and return

Abstract

Using hand-collected fund manager race data, I examined the current status of minority managers in the mutual fund industry. I investigated manager characteristics and performance differences between minority (Asian, Black, Hispanic Latino) and White managers. My results showed that minorities are underrepresented in the fund management industry, especially Black and Hispanic managers. On average, 86.8% of single-manager funds are managed by White individuals, while 8.3%, 2.7%, and 2.3% are Asian, Black, and Hispanic managers, respectively. Minority managers manage more international funds, while White managers manage more growth-focused funds. I show evidence that minority managers are younger and more educated, with shorter tenure and a lower percentage holding a CFA designation. The funds managed by White managers are larger in size, have a higher turnover ratio, and have greater exposure to market risk. Minority managed funds have higher monthly fund flows and take on greater idiosyncratic risk. I found no significant difference in fund returns or risk-adjusted abnormal returns (alpha). These results are robust to various analytical methods. Essay 2 examines the gender impact with a broader spectrum of fund types and studies the joint effect of race and gender related to the aforementioned metrics. The data show 89.21% of all funds and 90.24% of actively managed funds are managed by males. I found that females are younger, have less tenure, have lower levels of education, are more likely to hold a CFA designation, and have attended top tier schools. Female managers are more likely to manage international funds. I discovered that funds managed by males are larger, older, exhibit higher turnover ratios, and have higher levels of fund risk. Male managers are more likely to manage growth-focused funds. I found no significant difference in fund returns or risk-adjusted abnormal returns (alpha) utilizing Jensen’s alpha. There are few significant differences in fund performances pertaining to gender and the interaction of race and gender. The findings of this study can improve our understanding of mutual fund performance in general. More importantly, this study provides timely and imperative information to understand and address the lack of diversity in the mutual fund industry.