Abstract

his support with the CDA/Spectrum database. We especially thank Russ Wermers for providing us with the characteristic-adjusted stock returns reported in DGTW (1997). We acknowledge the financial support from Mitsui Life Center in acquiring the CDA/Spectrum data. All errors are our own responsibility. On the Industry Concentration of Actively Managed Equity Mutual Funds The value of active fund management recently has become a central debate among researchers and practitioners. Mutual fund managers can deviate from the passive market portfolio by concentrating their holdings in specific industries. We investigate whether mutual fund managers are motivated to hold concentrated portfolios because they have investment skills that are linked to specific industries or whether they are motivated by agency problems that induce them to hold poorly diversified portfolios. Using U.S. mutual fund data from 1984-1999, we study the relationship between the industry concentration of mutual funds and their performance. Our analysis indicates that mutual funds differ substantially in their industry concentration, and that concentrated funds tend to follow distinct investment styles. Managers of more concentrated funds

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