Investor preference, performance often align when it comes to new funds: report

By Noushin Ziafati | August 7, 2025 | Last updated on August 7, 2025
3 min read
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Investors are drawn to new investment funds with frequent portfolio disclosures, and to portfolio managers who are chartered financial analyst (CFA) holders and/or female, reports Morningstar Inc. Those preferences tend to align with performance, according to new global research.

The study analyzed 57,512 funds in Morningstar’s international database — all of them with a track record less than 12 months in length. The sample period spanned from January 2005 to March 2013. Lee Davidson, head of quantitative research, Madison Sargis, quantitative analyst and Timothy Strauts, senior analyst, wrote the report.

The study explored the relationship between observed investor preferences for — and eventual investor outcomes from — newly launched funds by examining forward 36-month cumulative flows and forward 36-month cumulative risk-adjusted returns.

Morningstar researchers noted, however, that most fund flows “are not due to the actions of the retail investor but are directed by the result of some complex interaction between an advisor, an institution and a platform.”

“[T]hese are the types of newly launched funds that most successfully navigated the network of distribution channels and most appealed to advisors,” researchers wrote in their report.

Disclosure drives flows

One of the key findings of the study was that disclosing portfolio holdings generated higher flows and was correlated to higher forward returns.

Investors highly value when a fund has reported holdings information within the first year of launch and place additional value on frequent updates to the fund, the report noted.

But the researchers said they don’t expect the relationship between portfolio disclosure and higher risk-adjusted returns to be causal.

“Rather, we believe the underlying causes for frequent disclosure and higher returns could be shared: an indication of a higher-quality strategy, greater manager confidence, vigorous firm stewardship and sound investment process,” they wrote in the report.

The study also found that new funds managed by Chartered Financial Analyst (CFA) designation holders achieve better outcomes and are preferred by investors.

Other designations that signal higher educational achievements such as PhD, Certified Financial Planner or Chartered Alternative Investment Analyst designations would also likely resonate with investors, the report suggested.

“Investors have imperfect knowledge about a manager’s capabilities, so they are likely using the CFA charter as a proxy for skill and education,” it said.

Women outperform

Female portfolio managers tend to garner more assets as well, with fund flows following women portfolio managers for equity and fixed-income asset classes, the study found.

The researchers said this may be because few women advance in the fund management industry, likely due to facing significant headwinds, and therefore, those who do become portfolio managers should perform higher than the average male portfolio manager.

“Our reasoning implies a female portfolio manager signals to an investor higher management skill, which is represented by a positive association between flows and gender,” they wrote in the report.

At the same time, the researchers stressed that gender isn’t a suitable proxy for skill.

“A portfolio manager is not inherently better at managing a fund because of gender, regardless of the headwinds faced in a manager’s career development. Therefore, we are not surprised to see inconclusive results,” the report said.

The study further found that investors tend to gravitate toward funds that are owned by their portfolio managers. Those funds tend to perform better, too.

The study didn’t differentiate between the levels at which portfolio managers owned their own funds, but noted whether a single manager had at least $1 invested in the fund.

“In the absence of historical information about a manager’s decision-making, investors are using managers’ financial stakes in new funds as a proxy for their stewardship,” the report said. “The decision to do so has shown to be meaningful and positive in terms of higher forward returns.”

Some of the other key findings of the study were that high fees hurt new fund flows and future risk-adjusted returns, asset managers with large market share have an advantage when launching new funds and launching funds in periods of economic stress tends to be positive for future performance.

The researchers noted several limitations in the report but suggested that a study on the rise and fall of new funds with such a large scope has not been conducted before.

“To our knowledge, a larger data set has never been assembled to approach this question. Indeed, this study may be the first of its kind,” they wrote in the report.

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Noushin Ziafati

Noushin has been the associate editor of Advisor.ca since 2024. Previously, she worked at outlets including the CBC, Canadian Press, CTV News, Telegraph-Journal and Chronicle Herald. Reach her at noushin@newcom.ca.