Working Paper: CEPR ID: DP15033
Authors: Lubo Pastor; Blair Vorsatz
Abstract: We present a comprehensive analysis of the performance and flows of U.S. actively-managed equity mutual funds during the COVID-19 crisis of 2020. We find that most active funds underperform passive benchmarks during the crisis, contradicting a popular hypothesis. Funds with high sustainability ratings perform well, as do funds with high star ratings. Fund outflows largely extend pre-crisis trends. Investors favor funds that apply exclusion criteria and funds with high sustainability ratings, especially environmental ones. Our finding that investors remain focused on sustainability during this major crisis suggests they view sustainability as a necessity rather than a luxury good.
Keywords: COVID-19; mutual funds; sustainability
JEL Codes: G01; G11; G12; G14; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Active equity mutual funds underperform passive benchmarks during the COVID-19 crisis (G41) | Underperformance of 74.2% of funds versus SP 500 (G23) |
| Funds with high sustainability ratings (4 or 5 globes) (Q01) | Performance increase of 14.21% (C69) |
| Higher star ratings (C52) | Increase of 5.78% in annualized returns (G11) |
| Funds employing exclusion criteria (G23) | Performance effect diminishes when controlling for other variables (D29) |
| Growth funds (G23) | Outperformance on a style-adjusted basis and in general (G40) |