Canadian Investment Review

Merging Gives Mutual Funds Clean Slate

Written by David Rankin, Jun Yang, Eric Zengxiang Wang on Thursday, March 18th, 2010 at 10:37 am


In the current Canadian regulatory environment, a mutual fund company is able to delete the history of an underperforming fund from public record by merging it with another fund. This paper addresses the effects of this rule on the super- concentrated group of Canadian mutual fund mergers that involved eCommerce portfolios between 2001 and 2004. A weighted average technique is proposed to reconstruct the pre-merger historical performance of a ‘combination fund’. It is found that mutual fund companies are able to make their merged funds look considerably better by truncating the funds’ pre-merger performance data. Read the whole paper here.

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