Supply Chain Concentration in Active Portfolio Management
50 Pages Posted: 13 May 2023 Last revised: 2 Aug 2023
Date Written: May 11, 2023
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