Characteristics of Mutual Fund Portfolios: Where Are the Value Funds?

This paper provides a comprehensive analysis of portfolios of active mutual funds and ETFs through the lens of risk (anomaly) factors. We show that these funds do not systematically tilt their portfolios towards profitable factors, such as high book-to-market (BM) ratios, high momentum, small size, high profitability, and low investment growth. Strikingly, there are almost no high-BM funds in our sample while there are many low-BM “growth” funds. Portfolios of “growth” funds are concentrated in low BM-stocks but “value” funds hold stocks across the entire BM spectrum. In fact, most “value” funds hold a higher proportion of their portfolios in low-BM (“growth”) stocks than in high-BM (“value”) stocks. While there are some micro/small/mid-cap funds, the vast majority of mutual funds hold very large stocks. But the distributions of mutual fund momentum, profitability, and investment growth are concentrated around market average with little variation across funds. The characteristics distributions of ETFs and hedge funds do not differ significantly from those of mutual funds. We conclude that the characteristics of mutual fund portfolios raise a number of questions about why funds do not exploit well-known return premia and how their portfolio choices affect asset prices in equilibrium.