New Positions in Mutual Fund Portfolios: Implications for Fund Alpha

This study introduces a new measure of fund activeness that predicts future fund abnormal returns. This measure is defined as the "return on new portfolio holdings." It is constructed as the return on stocks that a fund has not held before. We find that the return on these positions drives future fund alpha. On average, a one-standard deviation increase in the return on new holdings increases fund alpha by approximately 0.39 to 0.49 percent per year. Overall, our findings provide new insights on the value of active management.