Newspaper article THE JOURNAL RECORD

Best Mutual Funds Drink from Fountain of Youth

Newspaper article THE JOURNAL RECORD

Best Mutual Funds Drink from Fountain of Youth

Article excerpt

NEW YORK -- As the stock market has soared during the last several years, it has often seemed as if the manager of the latest hot mutual fund is barely out of college. Is that a coincidence? Or is youth an advantage when it comes to running money?

The answer, according to a new study published by the National Bureau of Economic Research, appears to be that it is not a coincidence. "We find that younger managers can earn much higher returns than older managers," write Judith Chevalier and Glenn Ellison.

Their study, based on performance of growth and growth and income equity mutual funds from 1988-94, concluded that the younger the manager, the better the performance. "When we control for everything," said Ellison, an associate professor of economics at the Massachusetts Institute of Technology, "we get about three basis points per year." In other words, a 29-year-old manager would be expected, on average, to show a return of about 0.3 percent higher than that of a 30-year-old. And that 30-year-old would do about half a percentage point better than a 48-year-old. The instinctive reaction of many an older manager, particularly in this bull market, is that such performance may have something to do with risk. Younger managers, having never seen a bear market, may be more likely to swing for the fences. For most of the period covered in the study, that was a very good strategy. But Ellison, who is 31, and Chevalier, a 29-year-old assistant professor of economics at the University of Chicago business school, say that they have attempted to control for such risk-taking, and that risk does not appear to explain the phenomenon. In fact, they say, it appears that older managers are more likely to be "momentum" investors, that is, to buy stocks largely because they are going up. What may explain the difference, at least in part, is that the study also indicates that younger managers with poor performance are more likely to be dismissed than are older managers who do poorly. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.