Country Rotation and International Mutual Fund Performance

Abstract International equity funds attain superior subsequent performance by actively changing their country asset allocations, which we capture through a new measure of active country rotation intensity. Across funds, those that rotate country allocations with the greatest intensity on average have the highest value added. We offer evidence that a fund’s change of holdings in a country is associated with future outperformance in those specific holdings. Outperformance is concentrated on the downside when funds sell down country holdings before subsequent poor country market returns. Overall, our findings affirm that active international mutual funds have country market timing abilities.