Do locals perform better than foreigners?: An analysis of UK and US mutual fund managers

We hypothesize that local knowledge and contacts lead to superior returns for local mutual fund managers relative to foreign managers. To test this hypothesis, we study the performance of mutual funds in two countries: the US and UK. We examine the effectiveness of UK open end fund managers (foreigners) investing in the US relative to US open end fund managers (locals) investing in the US. Controlling for differential tax treatment, fund expenses, fund objectives, and currency risk, we find that UK mutual funds investing in the US perform worse than US domestic funds. We conclude that information/relationship disadvantages and fund size contribute to this poor performance.