Concentration in mutual fund equity holdings during global economic crises

This study examines whether portfolio equity concentration at the country, industry, and security levels results in better performance of global mutual funds during periods of significant shocks to the global economy. We document that mutual funds’ equity portfolios are more concentrated across countries and industries during economic crises, and fund managers engage in more active security selection rather than passive benchmark investing. More concentrated equity allocations are associated with higher portfolio returns and appear to be driven by information advantage. Overall, results suggest that mutual fund managers employ information advantage and generate higher risk-adjusted returns with concentrated positions in global markets during times of negative shocks to the global economy. • Mutual funds increase portfolio concentration across countries, industries, and securities during global economic crises. • Greater concentration is associated with higher risk-adjusted returns. • Fund managers allocate more to geographically and culturally proximate markets during crises, generating higher returns. • Concentration benefits are driven by improved stock selection and market-timing, especially during crises. • Fund managers capitalize on global market uncertainty and actively exploit crises to generate higher risk-adjusted returns.