Supply Chain Concentration in Active Portfolio Management

We introduce a novel measure to study the relationship between portfolio concentration in vertically related firms and the performance of actively managed U.S. mutual funds. We find a strong positive relationship between our supply chain concentration measure and fund performance. While funds' investment style mandates act as an institutional constraint, hindering the ability to fully exploit supply chain relationships, the industry specialization of these investors serves as a counterforce to such constraints. Our paper offers a previously unexplored, rational explanation for the slow incorporation of value-relevant information in interconnected firms and its impact on corporate decisions and asset pricing.

Keywords: active management; specialization; concentration; fund performance; supply chain; investment mandate; mutual funds

JEL Classification: G11, G23

Suggested Citation: Suggested Citation

Bai, John (Jianqiu) and Wan, Chi and Yuksel, Hasan Zafer and Zambrana, Rafael, Supply Chain Concentration in Active Portfolio Management (May 11, 2023). Northeastern U. D’Amore-McKim School of Business Research Paper No. 4445669, Available at SSRN: https://ssrn.com/abstract=4445669 or http://dx.doi.org/10.2139/ssrn.4445669