Country and Industry Concentration and the Performance of International Mutual Funds
Takato Hiraki Ming Liu Xue Wang
We examine the relationship between portfolio country versus industry concentration and performance using a hand-matched data set of international equity funds. When sorted by concentration measures, funds in the most concentrated quintile outperform the diversified quintile by 0.16% and 0.30% monthly in country and industry dimensions, respectively. Further analysis shows that the superior performance of concentrated funds is largely driven by industry rather than country concentration, suggesting the existence of global industry private information. Finally, we show that industry-concentrated funds rotate top-holding industries less frequently than their diversified counterparts and the industries they purchase subsequently outperform the industries they sell.