Abstract

This paper develops clientele-specific performance measures based on the style preferences of mutual fund investors. Proposing an approach that considers investor disagreement and exploits style classification data, we investigate eight measures to represent investors with favorable preferences for size and value equity styles using a large sample of actively-managed U.S. equity mutual funds from 1998 to 2012. We find that the implied style preferences differ in their rational and behavioral features: value and small-cap fund investors (growth and large-cap fund investors) are more (less) averse to difficult economic conditions, and tend to be pessimists and contrarians (optimists and trend followers). The performance of funds assigned to clientele-specific styles becomes neutral or positive when evaluated with measures that consider their most likely style clienteles. The sign of the value added by the industry is ambiguous and depends on the choice of measures. Hence, performance is more favorable when funds are evaluated with their appropriate style-clientele-specific measure, and can otherwise depend on the measure.

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