earticle

영어

A common belief about fund managers with superior performance is that they are more likely to succeed in stock selection with an informational advantage, far from diversifying their portfolio. Although some empirical studies support this view, it contradicts modern portfolio theory, in which well-diversified portfolios have higher returns. To address this inconsistency, this paper re-examines the effects of diversification by applying a comprehensive diversification measure, the diversification ratio (DR), to the actual mutual fund portfolio. Our results show that high-DR funds have more efficiently diversified portfolios than low-DR funds do and significantly higher risk-adjusted returns over a long period, consistent with theoretical predictions. Most importantly, we find a surprising positive relation between the DR and managerial skill measures such as Active Share, R-squared, and Industry concentration index. Considering both the portfolio weights and its correlation structure, we find that fund managers with superior skill have more concentrated portfolios, while their concentrated bets are less correlated with existing portfolios. Therefore, we suggest that deviating from the benchmark market index with concentrated investments is ultimately in line with the efficient construction of a diversified portfolio in terms of achieving superior performance. Consequently, our paper contributes to reconciling the conflicting empirical literature on the benefits of portfolio concentration with the diversification effect of modern portfolio theory.