We find that portfolios in which funds are weighted by their money inf lows outperform portfolios in which funds are weighted by TNA: New money beats also find that high net f low funds outperformlow net f low funds. Thus, within the universe of actively managed funds, new investors tend to choose the better ones: Money is smart. This result holds for both individual and institutional investors, and is driven by investors’ fund buys rather than sells. The smart money effect is not explained by the Chen et al. (2004) fund size effect, performance persistence, or the impact of annual fees on fund per- formance, nor is.
