Is your favourite fund manager’s name holding you back?

A new study of investment funds suggests managers with names such as 'Harper' or 'Prentice' are more likely to attract fund flows than those with managers named 'Obama' or 'Merkel .

Is your favourite fund manager’s name holding you back?
A new study of U.S. stock funds suggests managers with names such as Harper or Cameron are more likely to be  successful attracting new fund flows than managers named Obama or Merkel.
Three finance professors from the U.S., Germany and the Netherlands gave 150 U.S. residents the names of all U.S. equity fund managers between 1993 to 2011. They then asked these people to indicate which names they thought were foreign sounding.
This is the subjective part of the research.
The professors then analyzed the fund flows of funds whose managers’ names were foreign sounding, comparing them to those that were more American.  
According to their findings the foreign-sounding names experienced fund flows that were about 10% lower. Most notably, fund flows to funds with foreign-sounding names saw big declines after both 9/11 and after the Boston marathon bombings.
Mutual fund managers, say the professors, are a great cohort to study when looking at potential stereotypes because mutual fund returns provide a scorecard that can’t be ignored. Your fund manager might have a name like Obama but if he or she is delivering 16% annualized returns over a long period of time (five years or more), lower fund flows can’t be attributable to poor performance.
One of the findings of the professors:
“Our key conjecture is that funds managed by individuals with foreign-sounding names would have lower fund flows  even if managers of those funds do not have inferior investment skill. In addition, those managers may be ‘punished’ more after bad performance and ‘rewarded’ less after good past performance, i.e., compared to funds managed by individuals with non-foreign-sounding names…”
In addition, the authors found that when two identical funds were compared that were either in the bottom or top quartile of all mutual funds and the only difference was the fund managers’ name, the fund with the foreign-sounding name experienced outflows that were 14.2 percentage points higher and inflows that were 46.7 percentage points lower.
The authors conclude their paper by suggesting, “…These results suggest that social biases such as in-group bias, stereotyping, and discrimination affect the mutual fund investments of U.S. investors.”
Are we any different in Canada? Perhaps.
However, the next time you look at your client’s portfolio, ask yourself whether or not discrimination played a part in its construction. The answers might surprise you.