Portfolio Concentration and Investment Performance

This study examines the relationship between investment performance and concentration inactive equity portfolios. Active management is dependent on the success of two importantcomponents in the investment process stock selection skill and portfolio management. Ourstudy documents a positive relationship between fund performance and portfolio concentration.The relationship is stronger for stocks in which active managers hold overweight positions, as well as for stocks outside the largest 50 stocks listed on the Australian Stock Exchange (ASX). We find more concentrated funds tend to be those implementing growth styles, having smalleraggregate assets under management, being institutions which are not affiliated with a bank or life-office entity, whose funds experience past period outflows, and who are benchmarked to narrower indexes than the Samp;P/ASX 300