Fund Performance, Managers’ Genuine Stock Selection Skills and Managerial Replacement : Evidence from the UK Unit Trust Industry

Using UK unit trusts data, we analyse the interplay among fund performance, flow changes, portfolio characteristics and managerial replacement. We find that managers with superior performance that is due to sample variation are more likely to be dismissed than are ‘unlucky' managers indicating that many fund companies are not captivated by the ‘lucky' managers' extreme performance and willing to give ‘unlucky' managers another chance. Furthermore, underperforming managers are more likely to be replaced in response to decreases in fund inflow than are outperforming managers. Managers' adjustment of portfolio components exerts mixed influence on the probability of replacement