Mutual Fund Industry Selection and Persistence

Mutual Fund Industry Selection and Persistence

Busse, Jeffrey A. and Tong, Qing, (December 2007)

Abstract:

We analyze mutual fund industry selectivity - the ability of funds to skillfully allocate assets across industries. We estimate that industry selection influences mutual fund performance about as much as individual stock selection. We find that persistence across the full range of performance deciles is attributable to industry selection. After removing industry effects from gross mutual fund returns, we find that the performance of poorly performing funds strongly reverses. We also find that, unlike individual-stock-selection ability, industry selectivity is not subject to diminishing returns to scale.