Thematic Concentration and Mutual Fund Performance

81 Pages Posted: 5 Aug 2022 Last revised: 6 May 2024

See all articles by John (Jianqiu) Bai

John (Jianqiu) Bai

Northeastern University - D’Amore-McKim School of Business

Yuehua Tang

University of Florida - Department of Finance

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance

H. Zafer Yuksel

Texas A&M University Corpus Christi

Date Written: May 1, 2024

Abstract

This study investigates whether mutual fund managers can generate alpha through thematic investment strategies that focus their portfolios on stocks poised to benefit from specific themes. We employ textual analysis of 10-K filings to identify stocks’ thematic exposures and calculate a fund’s thematic concentration index (TCI) using its holdings. Funds with high TCI significantly outperform, with a D10-D1 difference in four-factor alpha of 4.25% per annum. Fund managers’ thematic expertise is related to the field of their undergraduate study. High TCI managers have an informational edge on firms’ earnings, especially in stocks exposed to themes related to their degree background.

Keywords: Mutual Funds, Manager Skills, Thematic Investing, Fund Performance, Specialization, Textual Analysis

JEL Classification: G11, G23, J24

Suggested Citation

Bai, John (Jianqiu) and Tang, Yuehua and Wan, Chi and Yuksel, H. Zafer, Thematic Concentration and Mutual Fund Performance (May 1, 2024). Northeastern U. D’Amore-McKim School of Business Research Paper No. 4164823, Available at SSRN: https://ssrn.com/abstract=4164823 or http://dx.doi.org/10.2139/ssrn.4164823

John (Jianqiu) Bai

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Yuehua Tang (Contact Author)

University of Florida - Department of Finance ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/yuehuatang

Chi Wan

University of Massachusetts Boston - Department of Accounting and Finance ( email )

Boston, MA 02125
United States

H. Zafer Yuksel

Texas A&M University Corpus Christi ( email )

6300 ocean drive
corpus christi, TX TX 78414
United States

HOME PAGE: http://https://cob.tamucc.edu/About_Us/faculty_staff_directory.html

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