Strategy distinctiveness and fund performance: Evidence from U.S. fixed income funds

Abstract

This thesis examines the relation between the distinctiveness and the performance of mutual funds. To analyze fund returns, I use the Strategy Distinctiveness Index following Sun et al. (2012). Defining the strategical distinctiveness of a fund as 1 – correlation between the fund and its peer group, I compute the SDI values for a fixed income fund dataset and then compile quintile portfolios based on the measure. In line with the original study, I find evidence that the SDI measure is somewhat capable of capturing managerial skill, by using an additional robustness check based on absolute correlation. In addition, results on performance add on to previous literature showing that the SDI has some positive relation with future fund performance, as the High-SDI portfolio outperforms the Low-SDI portfolio by 0.16% on monthly terms.