Comparative Performance of Mutual Funds and Hedge Funds: Riding the COVID-19 Pandemic

Abstract

<p>We present an analysis of the performance and flow of U.S. mutual funds (includingequity funds, taxable, and tax-exempt fixed-income funds) and hedge funds during and after the COVID19 pandemic. We find that during the COVID-19 period, equity funds experienced inflow, while fixed-income mutual funds (tax-exempt) experienced outflow. Additionally, although fixedincome mutual funds (taxable and tax-exempt) underperform the passive benchmarks right after the pandemic (the post COVID-19 vaccine period), equity funds outperform the benchmarks during this period. Similar analysis on hedge funds shows that investors increase their investments into these funds; thus, hedge funds experienced inflow during the post COVID-19 vaccine period, and they outperformed the benchmarks during the COVID-19 period. Moreover, the five-factor Fama-French analysis results confirm that mutual funds outperform the market with a significant positive alpha during and after the pandemic. Overall, investors holding equity funds incur the least losses due to the COVID-19 pandemic among other investors.</p>