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RESEARCH PRODUCT

A fuzzy-set analysis of conditions influencing mutual fund performance

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Abstract This paper presents an application of fuzzy-set qualitative comparative analysis (fsQCA) to frame the conditions that lead to over- or under-performance of mutual funds. Building upon a considerable library of research on fund returns, the study uses fsQCA to affirm and extend earlier discoveries. Considered here is fund performance relative to Morningstar ratings, features of the funds themselves, as well as characteristics of the fund managers. Results suggest that positive Morningstar and analyst ratings are necessary conditions, on average, for funds to generate value according to the Jensen's alpha ratio. Just over seven percent of the cases imply that funds have attractive Sharpe ratios and higher returns when the funds have lower management fees and lower ongoing fees. Likewise, larger funds with better Morningstar ratings are associated with improved Sharpe ratios and better returns, often where the fund manager has not been managing the fund for a long period.