Sound Governance Boosts Mutual Fund Performance

FROM MONEY MANAGEMENT EXECUTIVE

Preliminary research by Northeastern University researchers David P. Boyd and Mustafa Yilmaz in late 2006 also indicated stewardship grades are a statistically significant component in effecting stock fund returns. The Boyd and Yilmaz study looked at the correlation between stewardship grades and the performance of 1,124 mutual funds. The researchers examined 860 stock funds and 264 bond fund returns over three years ending in 2005, using a regression model. The results of their statistically significant analysis showed that a one-point increase in the stewardship rating of 1,164 stock and bond funds would result in an 80-basis-point increase in the annual average return of a fund.

The study also found that stewardship is a slightly greater contribution factor in the returns of growth and value stock funds compared with blended funds. Stewardship is not a significant variable in explaining the return on bond funds because equity funds exhibit greater variability in returns than bond funds.

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