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ETF use among actively managed mutual fund portfolios

Author

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  • Sherrill, D. Eli
  • Shirley, Sara E.
  • Stark, Jeffrey R.

Abstract

It is well known that actively managed mutual funds use exchange-traded funds (ETFs), although current research has yet to establish the benefits of these positions. Focusing on ETF type, we investigate whether or not ETFs impact portfolio management. Funds using benchmark ETFs see reductions in cash holdings, particularly during periods of large flows, and lower tracking error. In contrast, non-benchmark ETF positions improve the performance of large mutual funds investing in micro-cap stocks while also reducing portfolio risk. While studies caution against the extensive use of ETFs, we conclude that ETFs can provide tangible benefits for funds when considering the type of ETF used.

Suggested Citation

  • Sherrill, D. Eli & Shirley, Sara E. & Stark, Jeffrey R., 2020. "ETF use among actively managed mutual fund portfolios," Journal of Financial Markets, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finmar:v:51:y:2020:i:c:s1386418119303593
    DOI: 10.1016/j.finmar.2019.100529
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    References listed on IDEAS

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    Cited by:

    1. Dekker, Lennart & Molestina Vivar, Luis & Weistroffer, Christian, 2024. "Passing on the hot potato: the use of ETFs by open-ended funds to manage redemption requests," Working Paper Series 2963, European Central Bank.

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    More about this item

    Keywords

    Mutual fund; Mutual fund holdings; Portfolio management; Exchange-traded fund;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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