- The study shows that on average, mutual funds that held less-liquid stocks significantly outperformed those that held more-liquid stocks
Morningstar has announced that the CFA Institute Financial Analysts Journal (FAJ) has selected "The Liquidity Style of Mutual Funds" by Thomas Idzorek, James Xiong, and Roger Ibbotson for a prestigious Graham & Dodd Scroll Award for 2012. Idzorek, CFA, is president of the Morningstar Investment Management division; Xiong, Ph.D., CFA, is a senior research consultant in the Morningstar Investment Management division; and Ibbotson, Ph.D., CFA, is founder of Ibbotson Associates, chairman and chief investment officer of Zebra Capital Management, and professor of finance at the Yale School of Management. Morningstar acquired Ibbotson Associates in 2006. This is the 10th award from the FAJ won for financial writing based on research of Morningstar, Inc. or its subsidiaries.
"Liquidity offers another valuable lens to help investors evaluate and select mutual funds"
Recent studies have shown that a liquidity investment style—investing in stocks with lower trading volume—has led to excess returns. In "The Liquidity Style of Mutual Funds," the authors examined whether this style premium, previously documented in stock investing, can be applied at the mutual fund level. Across a wide range of mutual fund categories, they found that, on average, mutual funds that held less-liquid stocks significantly outperformed those that held more-liquid stocks. The paper was published in the November/December 2012 edition of the FAJ and can be found at www.cfapubs.org.
"There are many lenses through which we can view investments—large capitalization versus small, growth versus value. Liquidity offers another valuable lens to help investors evaluate and select mutual funds," Joe Mansueto, chairman and chief executive officer of Morningstar, said. "For years, Tom, James, and Roger have been producing innovative research on manager selection, asset allocation, and portfolio construction with an emphasis on theories and techniques that can be put into practice. We're pleased that the FAJ recognized these thought leaders and their contribution to the field."
Awarded by the FAJ's Advisory Council and Editorial Board, the Graham and Dodd Awards are given in recognition of excellence in research and financial writing. The FAJ is published six times a year by CFA Institute, the global association of more than 100,000 securities analysts, portfolio managers, strategists, consultants, and other investment specialists. The Journal advances the knowledge and understanding of the practice of investment management through the publication of high-quality, practitioner-relevant research.