Does Investment Style Drift Boost Pension Fund Performance? Evidence from China

Yezhou Sha, Canrui Zhao and Zixuan Yang

Emerging Markets Finance and Trade, 2025, vol. 61, issue 14, 4462-4478

Abstract: Style drift involves shifting risks to mutual fund investors, often allowing fund managers to chase higher returns. Adopting a holdings-based approach to model the investing style and its style drift of China’s national pension fund (NSSF), we discover that the style drift in pension funds is not sustainable. Analyzing pension portfolios sorted by style drift measures reveals that style drift adversely determines NSSF’s subsequent returns, which cannot be explained by asset pricing factor models. The results of cross-sectional analysis indicate that the influence of style drift on the predictability of returns is more pronounced when funds are managered by smaller institutions or during bearish market trends. Our finding contributes to our comprehension of the impact of style drift on one of the world’s largest pension funds.

Date: 2025
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DOI: 10.1080/1540496X.2025.2515253

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