The Impact Of Investment Style Drift On Fund Performance

After more than 20 years of development,China’s open-end funds have achieved quantitative accumulation and qualitative growth in both quantity and scale,and play an irreplaceable role in asset preservation and appreciation.In reality,fund companies will emphasize the investment style of the fund to highlight the advantages of the product to attract investors with different investment style preferences.Once investors form trust in a certain style of fund,they will further invest more,which will help increase the overall size of the fund.However,fund managers often drift their investment style for various reasons in actual investment,and fund investors are limited by the fund position disclosure system and cannot detect the style changes of actual investment fund products in a timely manner.How does this style drift,contrary to investors’ original intentions,affect fund performance?What factors affect investment style drift?How is the degree of drift more reasonably measured?Whether targeted supervision is needed is a practical issue worth exploring.Taking 6402 equity-biased funds invested in China’s A-share market from January 1,2003 to March 31,2022,this paper studies the investment style drift of funds from the perspective of fund managers’ portfolio holdings,and empirically examines the impact of investment style drift on fund performance.Firstly,starting from the fund’s holdings,a new method is used to measure the investment style drift of the fund in the three dimensions of market capitalization,book capitalization ratio and momentum,and then the total investment style drift(TSD)of the fund quarter is obtained.In each dimension,it is decomposed into active investment style drift(ASD)caused by active trading of fund managers and passive style drift(PSD)caused by the continuous change of fund holding style characteristics due to market fluctuations,and the total investment style drift is disassembled and the analysis dimension is richer.Secondly,this paper deconstructs the return of China’s fund market in detail for the first time,and decomposes fund performance into stock characteristic cross-section stock selection ability(CS),timing adjustment ability(CT)and continuous style investment ability(AS).This decomposition method can deeply explore the impact of fund investment style drift on total return and returns in different dimensions.Finally,this paper explores the influence of individual factors such as fund performance ranking pressure,fund manager’s education,and gender on the relationship between investment style drift and fund return.The results show that the phenomenon of fund investment style drift is common in China.Total investment style drift,active investment style drift and passive investment style drift all have significant negative effects on fund performance,but the impact of investment style drift in different dimensions on fund performance is significantly different,such as total investment style drift in the dimensions of market value and book market capitalization ratio has a positive impact on the fund’s timing ability.The investment style drift in the momentum dimension has a significant positive impact on the fund’s performance and the fund’s cross-sectional stock selection ability.This shows that investment style drift has a negative impact on fund performance as a whole,and fund managers should reduce style drift in their investments to avoid exposing investors to additional risks.The moderating effect analysis found that male fund managers exacerbated the negative impact of investment style drift on fund performance,while fund managers with doctoral degrees mitigated this negative impact.According to the research results,the following suggestions are made:(1)strengthen the disclosure of fund investment information and reduce the degree of information asymmetry;(2)Strengthen popular science education for investors and reduce unreasonable investment risks;(3)Reconstruct the fund manager assessment system to reduce the pressure of short-term performance ranking.In general,this paper provides a deeper perspective on the in-depth understanding of China’s fund investment style drift,which helps fund managers better grasp the investment style and helps investors rationally choose fund products.