Is Mutual Fund Family Retirement Money Smart?

Abstract

Using data on investments of fund family employees in their 401(k) plans, I show that employee flows predict fund performance up to two years. The predictive power is stronger when fund family employees are located close to fund managers, pointing to employees exploiting their proximity to managers to learn about the managers’ skill. The results are not driven by plan design, portfolio managers’ ownership, or cross-subsidization. The top quintile of funds in terms of employee flows outperforms the bottom quintile by 1.6% annually in terms of Carhart Alpha, suggesting that other investors can benefit by mimicking fund employees.