A new study has concluded that mutual fund families often play favorites with their funds. They do this, it says, by giving certain funds extra shares of the most-sought-after initial public offerings and by arranging for funds in a family to take the opposite sides of certain trades, to the advantage of a chosen few of those funds.
The study, "Favoritism in Mutual Fund Families? Evidence on Strategic Cross-Fund Subsidization," was conducted by two finance professors at French business schools, Jose-Miguel Gaspar of Essec and Massimo Massa of Insead, with one of Massa's graduate students, Pedro Matos.
The research used a database of all actively managed domestic equity funds in the US from January 1991 through June 2001 and focused on the 50 largest fund families, whose combined assets amount to more than 80 percent of assets in such funds.
The researchers found that, because of favoritism, some funds do better than they would otherwise, while others perform worse. These conclusions are based on a statistical study of fund families as a group.
The researchers found that executives of fund families used several approaches to favor certain funds. In one strategy, the highest-fee funds in a fund family, on average, received far more shares of initial public offerings than those with the lowest fees. And funds with the best year-to-date performances also received a disproportionately large share.
This pattern was even more pronounced for IPOs whose prices jumped the most on their first day of trading. These were presumably the IPOs for which market demand was greatest, and therefore could be most expected to increase the favored funds' returns.
The researchers attributed an even bigger impact to a practice known as opposite trading, which occurs when funds within a family take the opposite sides of trades. That can happen when the manager of a favored fund wishes to buy or sell an illiquid stock, Massa said. The manager might otherwise think twice before making these trades, because the fund's own buying or selling could hurt prices. But by having other funds in the family buy when favored funds are selling or sell when the favorites are buying, the manager of a favored fund can trade with minimal impact on prices.
Over the period studied, the stocks sold by favored funds generally lagged behind the market after they were sold, and the stocks they bought generally outperformed. As a result, opposite trading had the effect of transferring some of the returns of out-of-favor funds to their favored brethren.
The government is aiming to recruit 1,096 foreign English teachers and teaching assistants this year, the Ministry of Education said yesterday. The foreign teachers would work closely with elementary and junior-high instructors to create and teach courses, ministry official Tsai Yi-ching (蔡宜靜) said. Together, they would create an immersive language environment, helping to motivate students while enhancing the skills of local teachers, she said. The ministry has since 2021 been recruiting foreign teachers through the Taiwan Foreign English Teacher Program, which offers placement, salary, housing and other benefits to eligible foreign teachers. Two centers serving northern and southern Taiwan assist in recruiting and training
WIDE NET: Health officials said they are considering all possibilities, such as bongkrekic acid, while the city mayor said they have not ruled out the possibility of a malicious act of poisoning Two people who dined at a restaurant in Taipei’s Far Eastern Department Store Xinyi A13 last week have died, while four are in intensive care, the Taipei Department of Health said yesterday. All of the outlets of Malaysian vegetarian restaurant franchise Polam Kopitiam have been ordered to close pending an investigation after 11 people became ill due to suspected food poisoning, city officials told a news conference in Taipei. The first fatality, a 39-year-old man who ate at the restaurant on Friday last week, died of kidney failure two days later at the city’s Mackay Memorial Hospital. A 66-year-old man who dined
RESTAURANT POISONING? Deputy Minister of Health and Welfare Victor Wang at a press conference last night said this was the first time bongkrekic acid was detected in Taiwan An autopsy discovered bongkrekic acid in a specimen collected from a person who died from food poisoning after dining at the Malaysian restaurant chain Polam Kopitiam, the Ministry of Health and Welfare said at a news conference last night. It was the first time bongkrekic acid was detected in Taiwan, Deputy Minister of Health and Welfare Victor Wang (王必勝) said. The testing conducted by forensic specialists at National Taiwan University was facilitated after a hospital voluntarily offered standard samples it had in stock that are required to test for bongkrekic acid, he said. Wang told the news conference that testing would continue despite
‘CARRIER KILLERS’: The Tuo Chiang-class corvettes’ stealth capability means they have a radar cross-section as small as the size of a fishing boat, an analyst said President Tsai Ing-wen (蔡英文) yesterday presided over a ceremony at Yilan County’s Suao Harbor (蘇澳港), where the navy took delivery of two indigenous Tuo Chiang-class corvettes. The corvettes, An Chiang (安江) and Wan Chiang (萬江), along with the introduction of the coast guard’s third and fourth 4,000-tonne cutters earlier this month, are a testament to Taiwan’s shipbuilding capability and signify the nation’s resolve to defend democracy and freedom, Tsai said. The vessels are also the last two of six Tuo Chiang-class corvettes ordered from Lungteh Shipbuilding Co (龍德造船) by the navy, Tsai said. The first Tuo Chiang-class vessel delivered was Ta Chiang (塔江)