Do Focused Funds Offer Superior Performance?
Author InfoTravis Sapp Xuemin (Sterling) Yan Abstract We examine gross fund returns based on the number of securities held and find no evidence that focused funds outperform diversified funds. After deducting expenses, focused funds significantly underperform. Controlling for various fund characteristics, fund performance is positively related to the fund’s number of holdings both before and after expenses. We find evidence linking focused fund underperformance to agency and liquidity problems. Finally, the attrition rate of focused funds is higher than that of diversified funds. These results do not support the view that managers holding focused portfolios have superior stock-picking skills or that focused funds provide value to investors. Copyright 2008, The Eastern Finance Association. Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links bel
