What Happens with More Funds than Stocks?

Abstract

Today there are more active equity mutual funds and equity ETFs than individual stocks. Funds differ meaningfully in terms of individual stock holdings, and we examine the factor exposures of the typical fund and the cross section of holdings of different funds. We also examine the most common characteristics of funds, and implicitly describe the most idiosyncratic components of funds. We also explore the implications of this proliferation in funds for the pricing of individual securities and funds. A key difference from the previous literature on common factors in fund returns is that we explicitly look at fund holdings over time for all US-listed equity active mutual funds and exchange-traded funds and contrast their differences.

Keywords: ETFs, Mutual Funds, Crowding, Factors

JEL Classification: G20