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Lixin Huang, Jayant R. Kale, Product Market Linkages, Manager Quality, and Mutual Fund Performance, Review of Finance, Volume 17, Issue 6, November 2013, Pages 1895–1946, https://doi.org/10.1093/rof/rfs038
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Abstract
Mutual funds typically invest a disproportionately large portion of their portfolio in one industry (main industry). We present a simple theoretical model to demonstrate that better mutual fund managers make larger investments in the important supplier/customer industries related to the main industry. Consistent with our theory, empirical tests on a large sample of mutual funds show that investment in related industries is positively associated with fund performance and plays a more significant role in explaining fund performance than investment in the main industry. Furthermore, the positive relation between main investment and fund performance obtains only when related investment is high.