Determinants of return rates of Russian equity and bond mutual funds: Active investment strategies and commissions

In our paper, we study the impact of active investment strategies and factors of their success in the Russian market of collective investment — self-confidence of managers, commissions of management companies (MC) — on return rates of mutual funds. For the first time, not only equity mutual funds, but also bond mutual funds are considered as an object of study; the time period is since 2012. Our study is based on data on the structure of mutual fund portfolios provided by Investfunds. We propose a number of original indicators of an active management style and consider the profitability of mutual funds relative to various benchmarks. Based on testing of multivariate regression models, it has been revealed that the return rate of equity mutual funds is negatively affected by a share of stocks in the fund portfolio which are not included in the market index. When managers take into account their previous negative investment experience, it contributes to the growth of mutual fund return rates. Active investment strategies correlate with increased commissions (up to 4.5% of NAV), but they do not allow an investor to receive higher return rates than index investments. An increase in the share of corporate bonds allows the fund manager to outperform benchmarks for bond funds. For the first time, a nonlinear relationship between the size of mutual funds and the value of commissions has been revealed for the Russian market.

Dynamic Liquidity Management by Corporate Bond Mutual Funds

How do corporate bond mutual funds manage liquidity to meet investor redemptions? We show that during tranquil market conditions, these funds tend to reduce liquid asset holdings to meet redemptions, temporarily increasing relative exposures to illiquid asset classes. When aggregate uncertainty rises, however, they tend to scale down their liquid and illiquid assets proportionally to preserve portfolio liquidity. This fund-level dynamic management of liquidity appears to affect the broad financial market: Redemptions from the corporate bond fund sector lead to more corporate bond selling during high-uncertainty periods, which generates price pressures and predicts strong return reversals.