I analyze fund returns conditioned on the SCI(Security Concentration Index), ICI(Industry Concen-tration Index), and number of holdings. In Petersen(2009) fixed effect panel regression, I find evidence that concentrated funds outperform diversified funds. After controlling for various fund characteristics, concen-trated funds significantly outperform. Fund performance before expense is positively related to the ICI and SCI. However, Fund performance before expense is negatively related to the number of holdings. Although concentrated funds significantly outperform other funds during business expansion, they do not significantly outperform during business recession.
I analyze fund returns conditioned on the SCI(Security Concentration Index), ICI(Industry Concen-tration Index), and number of holdings. In Petersen(2009) fixed effect panel regression, I find evidence that concentrated funds outperform diversified funds. After controlling for various fund characteristics, concen-trated funds significantly outperform. Fund performance before expense is positively related to the ICI and SCI. However, Fund performance before expense is negatively related to the number of holdings. Although concentrated funds significantly outperform other funds during business expansion, they do not significantly outperform during business recession.