Security Concentration and Active Fund Management

The Financial Review 43 (2008) 27--49 Security Concentration and energetic Fund Management: Do Focused Funds digest Superior Performance? Travis Sapp? Iowa State University Xuemin (Sterling) Yan University of MissouriColumbia Abstract We examine crying(a) blood returns based on the number of securities held and find no try out that focused funds outperform diversified funds. later deducting expenses, focused funds significantly underperform. Controlling for various fund characteristics, fund performance is positively related to the funds number of holdings both before and after expenses. We find evidence linking focused fund underperformance to agency and liquidity problems. Finally, the attrition prescribe of focused funds is higher than that of diversified funds. These results do not support the view that managers holding focused portfolios present superordinate stock-picking skills or that focused funds provide value to investors. Keywords: interchangeable fund performance, focused fund, security concentration, best ideas JEL Classifications: G11, G20 ? Corresponding informant: College of Business, 3362 Gerdin Business Bldg., Iowa State University, Ames, IA 50011-1350; Phone: (515) 294-2717; Fax: (515) 294-3525; E-mail: trasapp@iastate.edu We thank Arnie Cowan (the editor) and two anonymous referees for helpful comments.

Editors honour: The referee selection and primary editorial decision were do by Advisory Editor Doug Emery. c 2008, The Eastern pay Association 27 28 T. Sapp and X. (S.) Yan/The Financial Review 43 (2008) 2749 1. Introduction Beginning with Jensen (1968), a number of empirical studies show that actively managed mutual funds, on average, underperform relative to the market and various risk-adjusted benchmarks. The average underperformance of actively managed funds, however, does not preclude the possibility of superior performance by a subset of mutual funds. The question of whether some fund managers have superior investment skills... If you want to get a climb essay, order it on our website: Ordercustompaper.com

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