On the Industry Concentration of Actively Managed Equity Mutual Funds





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    • *Kacperczyk is from the Sauder School of Business at the University of British Columbia. Sialm and Zheng are from the Stephen M. Ross School of Business at the University of Michigan. We thank Sreedhar Bharath, Sugato Bhattacharyya, Fang Cai, Joel Dickson, William Goetzmann, Rick Green (the editor), Gautam Kaul, Lutz Kilian, Zbigniew Kominek, Francine Lafontaine, Luboš Pástor, Stefan Ruenzi, Tyler Shumway, Matthew Spiegel, Laura Starks, Steve Todd, Zhi Wang, Russ Wermers, Toni Whited, and especially an anonymous referee. We also benefited from helpful comments by seminar participants at the 2002 CIRANO seminar in Montreal, the 2003 European Financial Management Association Meeting in Helsinki, the 2003 Summer Meeting of the Econometric Society, the 2004 European Finance Association Meeting in Maastricht, the 2005 American Finance Association Meeting in Philadelphia, Michigan State University, the University of Colorado at Boulder, the University of Florida, the University of Michigan, and the University of St. Gallen. We are grateful to Paul Michaud for his support with the CDA/Spectrum database. We thank the authors of DGTW (1997) for providing us with the characteristic-adjusted stock returns reported in their paper. We acknowledge the financial support from Mitsui Life Center in acquiring the CDA/Spectrum data.


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.