Security Concentration and Fund Performance*

Abstract

We examine focused funds from 2002 to 2008 to see whether they offer superior performance to Korean equity funds without survivorship bias. Prior studies show that fund managers might allocate their funds to specific industries or focused securities to achieve superior performance. However, after controlling for various fund characteristics and using several alternative measures, our results show that fund performance has a positive relation to diversification. Furthermore, we identify that the underperformance of focused funds is due to liquidity problems, idiosyncratic risk, and trade performance. Our findings have important implications for the investment strategies of fund managers and fund industries.

Control of Luck in Measuring Investment Fund Performance*

“…Their findings support those of the present study; however, they do not formally estimate the proportions of (un)skilled funds. Sohn et al. (2011) investigate the effect of portfolio diversification on fund performance and find a positive relationship between the two.…”

Indian institutional investor's portfolio concentration decision: skill and performance

“…Previous studies mainly included mutual fund data in the analysis (Brands et al. , 2005; Fasano and Boido, 2017; Sohn et al. , 2011).…”

“…We could not find any study on emerging markets that examined emerging market fund managers' skills and portfolio concentration. Previous studies mainly included mutual fund data in the analysis (Brands et al, 2005;Fasano and Boido, 2017;Sohn et al, 2011). Very few papers have been found considering other institutional investors' data for the analysis (Choi et al, 2017).…”