Thematic Investing in Mutual Funds

62 Pages Posted: 5 Aug 2022 Last revised: 28 Nov 2022

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: November 2022

Abstract

We study whether mutual fund managers gain an edge through thematic investment strategies—investing in stocks that may benefit from a particular theme. We use textual analysis of 10-K filings to identify stocks exposed to different semantic themes and measure a mutual fund’s thematic exposure concentration by value-weighting all stocks in the portfolio. We find that funds with a higher thematic concentration index (TCI) perform significantly better, with the difference in four-factor alpha between the top and bottom deciles amounting to 2.92% per annum. Fund managers’ expertise in specific themes is partly driven by their educational background, in particular the field of undergraduate study. High TCI fund managers have an information advantage regarding firms’ fundamentals, such as earnings.

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

JEL Classification: G11, G23, J24

Suggested Citation

Bai, John (Jianqiu) and Tang, Yuehua and Wan, Chi and Yuksel, H. Zafer, Thematic Investing in Mutual Funds (November 2022). 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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