The Journal of Finance

Currency Management by International Fixed‐Income Mutual Funds

Published: 08/25/2024   |   DOI: 10.1111/jofi.13381

CLEMENS SIALM, QIFEI ZHU

Investments in international fixed‐income securities are exposed to significant currency risks. We collect novel data on currency derivatives used by U.S. international fixed‐income funds. We document that while 90% of funds use currency forwards, they hedge, on average, only 18% of their currency exposure. Funds' currency forward positions differ substantially based on risk management demands related to portfolio currency exposure, return‐enhancement motives such as currency momentum and carry trade, and strategic considerations related to past performance and fund clientele. Funds that hedge their currency risk exhibit lower return variability, but do not generate inferior abnormal returns.

Mutual Fund Tax Clienteles

Published: 07/19/2012   |   DOI: 10.1111/j.1540-6261.2012.01751.x

CLEMENS SIALM, LAURA STARKS

Mutual funds are held by investors in taxable and tax‐qualified retirement accounts. We investigate whether the characteristics, investment strategies, and performance of mutual funds held by these diverse tax clienteles differ. Examining both mutual fund distributions and mutual fund holdings, we find that funds held primarily by taxable investors choose investment strategies that result in lower tax burdens than funds held primarily in tax‐qualified accounts. Despite these differences, we find no evidence that any investment constraints that may arise from these tax‐efficient investment strategies result in performance differences between funds held by different tax clienteles.

Tax‐Efficient Asset Management: Evidence from Equity Mutual Funds

Published: 10/10/2019   |   DOI: 10.1111/jofi.12843

CLEMENS SIALM, HANJIANG ZHANG

We investigate the relation between tax burdens and mutual fund performance from both a theoretical and an empirical perspective. The theoretical model introduces heterogeneous tax clienteles in an environment with decreasing returns to scale and shows that the equilibrium performance of mutual funds depends on the size of the tax clienteles. Our empirical results show that the performance of U.S. equity mutual funds is related to their tax burdens. We find that tax‐efficient funds exhibit not only superior after‐tax performance, but also superior before‐tax performance due to lower trading costs, favorable style exposures, and better selectivity.

On the Industry Concentration of Actively Managed Equity Mutual Funds

Published: 08/12/2005   |   DOI: 10.1111/j.1540-6261.2005.00785.x

MARCIN KACPERCZYK, CLEMENS SIALM, LU ZHENG

Mutual fund managers may decide to deviate from a well‐diversified portfolio and concentrate their holdings in industries where they have informational advantages. In this paper, we study the relation between the industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 1999. Our results indicate that, on average, more concentrated funds perform better after controlling for risk and style differences using various performance measures. This finding suggests that investment ability is more evident among managers who hold portfolios concentrated in a few industries.

It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans

Published: 04/15/2016   |   DOI: 10.1111/jofi.12411

VERONIKA K. POOL, CLEMENS SIALM, IRINA STEFANESCU

This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own affiliated funds. Using a hand‐collected data set on the menu of investment options offered to plan participants, we show that fund deletions and additions are less sensitive to prior performance for affiliated than unaffiliated funds. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, we find that the subsequent performance of poorly performing affiliated funds indicates that this favoritism is not information driven.

Defined Contribution Pension Plans: Sticky or Discerning Money?

Published: 11/24/2014   |   DOI: 10.1111/jofi.12232

CLEMENS SIALM, LAURA T. STARKS, HANJIANG ZHANG

Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. However, participants’ inertia could be offset by DC plan sponsors, who adjust the plan's investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds from DC assets are more volatile and exhibit more performance sensitivity than non‐DC flows, primarily due to adjustments to the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning than non‐DC money.