For fund providers,
net ﬂows into their funds, as a result of investor purchasing and selling of
mutual fund units, translate directly into incremental assets under management and revenues.
Based on empirical evidence, it is well documented that investors tend to chase past
performance when selecting funds.
This ﬁnding is consistent with the notion that investors
deduct information about contemporaneous management ability from past performance.
There is extensive marketing literature that suggests that the brand of a product or service
can affect its sales (e.g., Keller, 1993; Shankar et al., 2008). If these insights from the
marketing literature apply to the fund management industry, one would expect investors to
direct their ﬂows based not only on objective measures, such as past performance, but also in
response to marketing efforts and after considering the fund brand image.
There is ample anecdotal evidence that fund advertising can be effective and that the
fund provider brand image has an inﬂuence on fund ﬂows. Fidelity, for example, is said to
have spent EUR 107.5 million on its pan–European marketing and advertising effort in
the ﬁve–year period up to 2000 in order to break into the European mutual fund market.
From its market entry in continental Europe in 1990, Fidelity grew to become the number
11 fund provider in Europe in terms of assets under management at the end of 2001. There
are also examples of how a drop in brand image can result in fund outﬂows. For example,
when Putnam’s reputation became tarnished in 2003 because of its involvement in the late
trading and market timing scandal in the USA, investors in that market withdrew USD 54
billion in assets from Putnam funds just in the fourth quarter of 2003 (Markham, 2006).
There are several empirical academic studies investigating fund ﬂows that analyse
choice factors related to marketing and distribution and ﬁnd that these choice factors
inﬂuence fund ﬂows. These studies can be divided into two categories: one using indirect
proxies for brand or marketing effort (Gruber, 1996; Sirri and Tufano, 1998; Frye, 2001;
Huang et al., 2007) and one using advertising data as a direct proxy (Jain and Wu, 2000;
Peng et al., 2011; Wei et al., 2011; Yankow et al., 2011). Both Frye (2001) and Yankow
et al. (2011) also take into account the provider’s fund distribution model. Our main
contribution is that we use a direct, survey–based assessment of brand image, rather than
indirect proxies. The data was obtained from a European research company, Fund Buyer
Focus, which has conducted annual surveys that identify how professional fund buyers
assess the brand of European mutual fund families. The data was gathered from 826–908
fund buyers in 11 countries over the period 2004–2011. We are the ﬁrst to use this new
dataset for an empirical study. When merged with a sample of equity funds domiciled in
Luxembourg within 30 different Morningstar categories (i.e., fund objectives) that are
In this study, we use the terms, fund management company and fund provider, or simply
provider, interchangeably. The term, fund family, is used for the range of funds offered by a
provider. All funds in the same fund family have the same brand.
See, for example, Gruber (1996), Chevalier and Ellison (1997), Sirri and Tufano (1998) for
the USA, Keswani and Stolin (2008) for the UK, and Ferreira et al. (2012) for an international
comparison. Using market share changes as ﬂow measure, Spiegel and Zhang (2013) conﬁrm
the positive relationship between past performance and ﬂows. However, according to their
results, as opposed to studies using relative ﬂows, the relationship between market share
changes and past performance is not convex.
See Wall Street Journal Europe, 8 February 2001.
© 2014 John Wiley & Sons Ltd
868 J. J. Hazenberg, F. Irek, W. van der Scheer and M. Stefanova