Supply Chain Concentration in Active Portfolio Management

We introduce a novel measure of concentration index of supply chain in mutual funds (CISC) and find that it is strongly associated with better fund performance. Using disaggregated data, our paper sheds light on how mutual funds exploit supply chain information to trade and profit. We find that funds’ investment style mandates likely serve as an institutional constraint that hinders funds’ ability to fully take advantage of supply chain relationships. At the same time, we find that industry specialization of mutual funds acts as a counterforce for such constraints. Together, our paper provides a previously unexplored rational explanation for the sluggish incorporation of value-relevant information along the supply chain documented in the literature and its impact on corporate decisions and asset pricing.