The effects of fund commonality in mutual fund families on fund operating expenses and return correlations:

Evidence from U.S. equity mutual funds

Abstract

This article examines the effects of the commonality of mutual funds within a fund family, which is measured by common stock holdings and multi-fund management, on fund operating expenses and return correlations. For U.S. equity funds during the period of 2001–2006, we find that common stock holdings and multi-fund management are negatively related to fund operating expenses but positively related to the correlation of fund return residuals, which increases the correlation of fund returns. Additionally, we find that the fund commonalities can have negative net effects on risk-adjusted returns of a portfolio with equity funds that have different investment objectives.