Thematic Concentration and Mutual Fund Performance

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: 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