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On the Industry Concentration of Actively Managed Equity Mutual Funds

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Author Info
Marcin Kacperczyk
Clemens Sialm
Lu Zheng

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Abstract

Mutual fund managers may decide to deviate from a well-diversified portfolio and concentrate their holdings in industries where they have informational advantages. In this paper, we study the relation between the industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 1999. Our results indicate that, on average, more concentrated funds perform better after controlling for risk and style differences using various performance measures. This finding suggests that investment ability is more evident among managers who hold portfolios concentrated in a few industries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10770.

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Date of creation: Sep 2004
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Handle: RePEc:nbr:nberwo:10770

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G2 - Financial Economics - - Financial Institutions and Services

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Grinblatt, Mark & Titman, Sheridan, 1993. "Performance Measurement without Benchmarks: An Examination of Mutual Fund Returns," Journal of Business, University of Chicago Press, vol. 66(1), pages 47-68, January. [Downloadable!] (restricted)
  2. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March. [Downloadable!] (restricted)
  3. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October. [Downloadable!] (restricted)
  4. Mark M. Carhart & Jennifer N. Carpenter & Anthony W. Lynch & David K. Musto, 2002. "Mutual Fund Survivorship," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(5), pages 1439-1463.
  5. Daniel, Kent, et al, 1997. " Measuring Mutual Fund Performance with Characteristic-Based Benchmarks," Journal of Finance, American Finance Association, vol. 52(3), pages 1035-58, July. [Downloadable!] (restricted)
  6. Klaas Baks & Andrew Metrick & Jessica Wachter, . "Should Investors Avoid All Actively Managed Mutual Funds? A Study in Bayesian Performance Evaluation," Rodney L. White Center for Financial Research Working Papers 18-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
    Other versions:
  7. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    Other versions:
  8. Klaas Baks & Andrew Metrick & Jessica Wachter, 1999. "Bayesian Performance Evaluation," NBER Working Papers 7069, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Brown, Stephen J & Goetzmann, William N, 1995. " Performance Persistence," Journal of Finance, American Finance Association, vol. 50(2), pages 679-98, June. [Downloadable!] (restricted)
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  10. Diane Del Guercio & Paula A. Tkac, 2000. "The determinants of the flow of funds of managed portfolios: mutual funds versus pension funds," Working Paper 2000-21, Federal Reserve Bank of Atlanta. [Downloadable!]
  11. Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law & Economics, University of Chicago Press, vol. 35(1), pages 45-70, April.
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  13. Goetzmann, William N & Peles, Nadav, 1997. "Cognitive Dissonance and Mutual Fund Investors," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 20(2), pages 145-58, Summer.
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  15. Frank, Mary Margaret & Poterba, James M & Shackelford, Douglas A & Shoven, John B, 2004. "Copycat Funds: Information Disclosure Regulation and the Returns to Active Management in the Mutual Fund Industry," Journal of Law & Economics, University of Chicago Press, vol. 47(2), pages 515-41, October.
    Other versions:
  16. Robert Kosowski & Allan Timmermann & Russ Wermers & Hal White, 2006. "Can Mutual Fund "Stars" Really Pick Stocks? New Evidence from a Bootstrap Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2551-2595, December. [Downloadable!] (restricted)
  17. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December. [Downloadable!] (restricted)
  18. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
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  21. Treynor, Jack L & Black, Fischer, 1973. "How to Use Security Analysis to Improve Portfolio Selection," Journal of Business, University of Chicago Press, vol. 46(1), pages 66-86, January. [Downloadable!] (restricted)
  22. Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stijn Van Nieuwerburgh & Laura Veldkamp, 2007. "Information Immobility and the Home Bias Puzzle," NBER Working Papers 13366, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Zoran Ivkovich & Clemens Sialm & Scott Weisbenner, 2004. "Portfolio Concentration and the Performance of Individual Investors," NBER Working Papers 10675, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. David J. Brophy & Paige P. Ouimet & Clemens Sialm, 2004. "PIPE Dreams? The Performance of Companies Issuing Equity Privately," NBER Working Papers 11011, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Stijn Van Nieuwerburgh & Laura Veldkamp, 2008. "Information Acquisition and Under-Diversification," NBER Working Papers 13904, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Lai, Richard, 2006. "Why Funds of Funds?," MPRA Paper 4762, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Andrea Frazzini & Owen A. Lamont, 2005. "Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns," NBER Working Papers 11526, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Marcin Kacperczyk & Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Attention Allocation Over the Business Cycle," NBER Working Papers 15450, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Juan Carlos Hatchondo, 2005. "Asymmetric information and the lack of international portfolio diversification," Working Paper 05-07, Federal Reserve Bank of Richmond. [Downloadable!]
  9. Jing Chen, 2005. "Information Theory and Market Behavior," Finance 0503009, EconWPA. [Downloadable!]
  10. Zhi Da & Pengjie Gao & Ravi Jagannathan, 2008. "Informed Trading, Liquidity Provision, and Stock Selection by Mutual Funds," NBER Working Papers 14609, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Javier Gil-Bazo & Pablo Ruiz-Verdu & Andre A. P. Santos, 2008. "The performance of socially responsible mutual funds: the role of fees and management companies," Business Economics Working Papers wb083409, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  12. Clemens Sialm & Laura Starks, 2009. "Mutual Fund Tax Clienteles," NBER Working Papers 15327, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Jennifer Huang & Clemens Sialm & Hanjiang Zhang, 2009. "Risk Shifting and Mutual Fund Performance," NBER Working Papers 14903, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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