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Diversification Versus Concentration ......... and the Winner Is?




Diversification has its obvious benefits but its pursuit can involve a trade-off between risk-controls and returns. We investigate this trade-off by examining the relative performance of diversified versus concentrated portfolios both formed on the basis of the same stock preferences. Using US equity mutual funds as our data base, we establish that the concentrated portfolios achieve the better performance. This highlights the potential for investors to diversify across concentrated funds rather than have the funds do the diversification themselves. It also highlights that the stocks selection skills of the managers may be lost by their portfolio construction endeavours.

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  • Danny Yeung & Paolo Pellizzari & Ron Bird & Sazali Abidin, 2012. "Diversification Versus Concentration ......... and the Winner Is?," Working Paper Series 18, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
  • Handle: RePEc:uts:pwcwps:18

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    1. Ron Bird & Paolo Pellizzari & Danny Yeung & Paul Woolley, 2012. "The Strategic Implementation of an Investment Process in a Funds Management Firm," Working Paper Series 17, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
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