Beyond active share: Boosting fund performance through common holdings with same-benchmark mutual funds

Abstract

This paper provides evidence that equity mutual funds benchmarked to the S&P 500 index keep up with the performance of their same-benchmark peers. To do so, mutual funds form a network linked by shared information through common holdings of non-benchmark stocks. Mutual funds with higher common holdings of non-benchmark stocks generate surplus average returns of 2.2% per year, and have lower volatility compared to mutual funds that do not. This framework provides an alternative to the idea of active share (Cremers and Petajisto, 2009), on how to boost mutual fund performance in the presence of a benchmark.