Tone of letters influences capital flows into mutual funds

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The writing style of shareholder letters from US fund companies influences how much capital flows from investors into the fund. If they are written dishonestly or negatively, it does not go down well with investors.

Investors react strongly to how fund companies write their semi-annual shareholder letters: the more negative the tone of a shareholder letter, the lower the fund’s net capital flows. Conversely, the less negative the tone of a letter, the more capital flows in. This is the conclusion of a study by researchers from the Leibniz Institute for Financial Research SAFE and the University of Mannheim, which used text analysis methods to examine the writing style of shareholder letters from 5,489 U.S. equity funds between 2006 and 2021.

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