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Can mutual funds time investment styles? Received (in revised form): 29th March, 2007 Laurens Swinkels is Assistant Professor in Finance at the Erasmus School of Economics in Rotterdam and affiliated with the Erasmus Research Institute of Management. He is also a Senior Researcher at Robeco’s Quantitative Strategies Department. Liam Tjong-A-Tjoe is pursuing his Master’s Degree in Financial Economics at the Erasmus School of Economics in Rotterdam. Erasmus School of Economics, Rotterdam, The Netherlands. E-mail: lswinkels@few.eur.nl Abstract We investigate the ability of mutual fund managers to successfully rotate between investment styles based on characteristics such as market capitalisation, valuation ratios, and price momentum. We find evidence in favour of market timing among a group of 153 US-based mutual funds with a Morningstar Midcap/Blend investments style. We also find evidence in favour of mutual funds being able to predict the direction of the valuation and momentum style returns, but not their magnitude. Our results indicate that the mutual funds in our sample were not able to rotate successfully between stocks with small and large market capitalisation. Journal of Asset Management (2007) 8, 123–132. doi:10.1057/palgrave.jam.2250066 Keywords: mutual funds, performance evaluation, style timing Introduction could benefit from this documented herding There exists a large body of academic behaviour. In the literature, three investment literature on the ability of mutual fund styles are often distinguished: size, value, and managers to time the equity market. Overall, momentum. Mutual fund managers who are there is little evidence in favour of positive able to predict these factors may end up with market timing ability. A notable exception is economically significant profits; see, for Bollen and Busse (