When selecting investment funds, investors must take into account a broad spectrum of alternatives, each of them with specific characteristics. Investors must then process this information and make a decision that most closely matches their preferences and investment objectives.
Investors however, are faced with vast amounts of information and they will inevitably attach more importance to some fund attributes than others. Identifying these attributes and quantifying their importance will uncover the main drivers of the fund choice process.
A choice based conjoint experiment, which realistically simulates the fund purchasing process, with over 200 investors taking part serves as the analytical backbone for this paper by estimating the utilities attached to each attribute as well as its importance in the purchasing decision-making across different market segments.
Thus, this paper provides crucial insights into the way in which investors purchase investment products and can be of great use to strategy and marketing teams at asset management firms and other product providers.
The findings in this report will allow asset managers to better target their marketing strategy as well as focusing it on the things that really matter to investors. In addition, the statistical model underpinning this report will serve as a basis to simulate the demand for new investment products.
Moreover, this paper will gauge the level of financial expertise of American investors and identify any anomalies or deficiencies in their investment decision-making, such as attaching too little (much) importance to crucial (unimportant) fund attributes. This will be of great value to fund managers and financial advisors seeking to define their strategy to educate and better inform the investment decisions of their clients.
In order to uncover the drivers behind the fund selection process among American investors, a choice-based conjoint experiment was designed and implemented. This type of experiment was chosen because it most accurately simulates the actual process of fund selection and purchasing as it involves investors choosing their most preferred fund among a set of funds each with different attributes.
In fact, academic evidence (see for example Huber, 1997 and Wilcox, 2002) suggests that the choice task approach of choice-based conjoint is more immediate and concrete than the abstract rating or ranking tasks utilized by other methods of conjoint-analysis. This methodology was chosen because its validity is expected to be higher than that of other methods, such as the ratings or ranking based approaches.