You’ve heard something for what you’re saying. Is there nothing for anything? It is a proposition that some fund investors have signed up through many transactions, leaving them worsening in the process.
Let’s backup for a little while. Investors don’t know exactly how much money they trade in a particular fund. However, we have data on how these transaction decisions are netted out in total. For example, the net asset flow of a fund. So, monthly flow volatility can be used to delegate how many trade investors have done it.
Therefore, I have derived monthly flow volatility figures for all stock funds and funds traded on exchanges over the decade ended March 31, 2025. I then grouped those funds into five quintiles based on how unstable the monthly flow was. From there, I was interested in estimating the total revenue return funds for each bucket that I earned on average.
What I found was that even the most volatile flows had the highest returns, while the funds with the most steady flows had the lowest total and dollar-weighted returns. Furthermore, the gap between fund totals and dollar-weighted returns has expanded as you moved from the least volatile bucket to the most volatile bucket.
This relationship was held to varying degrees even when controlling for a variety of variables including vehicle type (open-end fund vs ETF) and geographic focus (US stock vs international capital), as shown below.
Open-end equity funds
Equity ETF
US equity
International fairness
driver
Why did things sway like them? It comes down to the types of funds that make up different quintiles. Open-ended funds account for an unbalanced share of the “most unstable” buckets while the ETF controls the other four quintiles. In short, stock ETFs saw trading heavier than stocks.
Furthermore, although less pronounced, we also find that international equity funds and ETFs have less stable flows, as evidenced by heavier expressions in buckets of more volatile flows than US equity funds.
This brings the question of whether a space is destroyed by vehicle type, and whether a trade and investor outcomes can be seen in the same relationship. and Geographical focus.
To that end, I have compiled data for four combinations. The results were plotted on the charts below, including US equity open-end funds, US equity ETFs, international equity open-end funds, and international equity ETFs. For brevity, this chart represents the results as the ratio of the investor’s estimated dollar-weighted returns to the fund’s time-weighted returns (if the former is equal to the latter, the “capture” percentage is 100%.
The chart reveals a few things. One is that the more investors trade, the less total revenue they tend to capture, regardless of the type of vehicle or geographical focus. You can see it in a way that each chunk of the bar tilts downwards. Furthermore, the opportunity costs of transactions appear to have been steep in the ETF in general and international fairness in particular.
Conclusion
Although we cannot specifically quantify the amount of investors trading in stock funds and ETFs, the volatility of the flows of these funds can be used for proxy trading activities. By classifying funds based on that, we estimate their dollar-weighted returns, we find that the results have been significantly worse for investors with the most evaporated flows than for investors with the stable flows. This relationship was maintained even when controlling for multiple variables, such as vehicle type and geographic focus.
This appears to only be further strengthened to minimize incidents, even when the vehicle types provide the ability to trade frequently, as in the case of ETFS. In fact, we found that the opportunity costs of transactions are greater among ETFs than open-ended funds. What fees and other benefits do these costs have from comparable open-ended funds over the fees and other benefits that such vehicles enjoy?
It’s turned on
Here are things I write about, read, hear, and see.
- Wisdom: Why Amy Arnott? bad Christine on the idea of pausing with a 401(k) contribution and whether the bond case as a diversification factor is still intact.
- Buffer Beef: AQR disses Buffer ETF, FT Best I applaudI will provide to me $0.02
- Jason Zweig: “You may have to wait several months to get your pitance to cash out. Privately held. By then, the open market may have recovered, preventing it from opportunistically hampering rebalancing. “Yeah.
- “there is Lessons to Learn from Daniel Kahneman“death”
- Tyler Cowen explores a creative collaboration with Ian Leslie, author of “.John and Paul: A love story of song”
- Joel: An incredible second episode “Our Last”
- Gustav “close” and Bug ClubActual pain”
- war (Best City Combat Flick I’ve seen since Black Hawk Down. )
Don’t be a stranger
I love contacting you. Do you have feedback? The angle of the article? Email me at jeffrey.ptak@morningstar.com. If you’re so leaning you can also follow me on Twitter/X @syouth1and I write some odds and ends on a substance called cold Basic indicators.
