Fund Manager Skill in an Era of Globalization: Offshore Concentration and Fund Performance

We study how mutual fund managers gain an edge in selecting stocks in an era of globalization. We use textual analysis to construct a measure that captures a mutual fund’s offshore exposure concentration through holding US multinational firms. We find that funds with a higher offshore concentration index (OCI) perform significantly better, with the difference in four-factor alpha between the top and bottom deciles amounting to 2.95% per annum. Fund managers’ overweighting of firms with operations in certain countries can be partly attributed to their foreign ethnicity. High OCI fund managers have an information advantage regarding firms’ fundamentals, such as earnings.

Keywords: Mutual Funds, Manager Skill, Offshore Concentration, Fund Performance, Multinational Firms, Textual Analysis

JEL Classification: G11, G23, J24

Suggested Citation: Suggested Citation

Bai, John (Jianqiu) and Tang, Yuehua and Wan, Chi and Yuksel, H. Zafer, Fund Manager Skill in an Era of Globalization: Offshore Concentration and Fund Performance (July 5, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3544394 or http://dx.doi.org/10.2139/ssrn.3544394