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

Abstract

We use textual analysis to construct a measure that captures a mutual fund’s offshore exposure concentration through holding U.S. 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’ overweighing of firms with operations in certain countries can be partly attributed to their foreign ethnicity. High OCI fund managers have an information edge regarding firms’ fundamentals such as earnings. Overall, fund managers have country-specific expertise and specialization, which is an important source of fund alpha in an era of globalization.

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

JEL Classification: G11, G23, J24