Why are Some Diversified U.S. Equity Funds Less Diversified Than Others? A Study on the Industry Concentration of Mutual Funds

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Abstract/Contents

Abstract: Some diversified U.S. equity fund managers hold investments concentrated in one or a few specific industries. This paper investigates why some fund managers hold more concentrated portfolios. Using data on actively managed U.S. mutual funds from 2003 to 2010, I find that managers of more concentrated funds have their skills vary more across different industry sectors. Consequently, they earn a premium by overweighing their portfolios in industries they have comparative advantages in after controlling for risk and style differences using various benchmarks. My results also suggest that managers of more concentrated funds are more skilled, but also on average less responsive to macroeconomic opportunities. Finally, I find a manager’s choice of industry concentration is also influenced by her investment style and the size of her fund.

Type of resource	text
Date created	May 2011

Author	Liu, Binying
Primary advisor	Harding, Matthew C.
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	United States
Subject	equity fund managers
Subject	fund concentration
Genre	Thesis

Location	https://purl.stanford.edu/tr111hm3420

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Preferred Citation: Liu, Binying. (2011). Why are Some Diversified U.S. Equity Funds Less Diversified Than Others? A Study on the Industry Concentration of Mutual Funds. Stanford Digital Repository. Available at: https://purl.stanford.edu/tr111hm3420

Stanford University, Department of Economics, Honors Theses

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