Henri Vanhomwegen (UNamur)

Title: Mutual funds styles distinctiveness and financial performance insights from Europe

Asbtract: Do mutual funds following a same style adopt similar investment strategies? Are these potential differences more salient over certain periods? What drives a mutual fund to be distinct from its peers? Does it pay? Those are central questions for both academics and market practitioners that we aim to address in this paper. More generally, we propose to study the degree of commonality among European equity mutual funds over time, and its impact on financial performance. To this end, we use several market-based measures of commonality among 4957 European equity mutual fund returns over the 1999-2016 period. We pay a particular attention to the computation of adequate metrics, the so-called « strategy distinctiveness index » applying up-to-date techniques from statistics and machine learning to generate clusters of mutual funds associated to “styles”, from which we can gauge how similar or distinct a mutual fund is from its peers (i.e. the mutual funds belonging to the same cluster or style). Our results show marked changes in the level of commonality over time, distinctiveness among European mutual funds decreasing sharply before the crisis before going up and eventually reaching a new low in the recent months. We find strong evidence regarding the contribution of fund-level as well as cluster characteristics to strategy distinctiveness. Turning to financial performance, our results show a strong and robust, positive impact of strategy distinctiveness on financial performance.