Do mutual funds with more holdings have higher average returns?
To answer this question, I exported the turnover rate and number of holdings for all the mutual funds in the U.S. Small Cap Value Morningstar category from Morningstar’s website. There were 432 funds represented. I split the 432 funds into the following roughly-equal categories: 0-99 holdings (95), 100-199 holdings (123), 200-499 holdings (87), 500-999 holdings (48), and 1,000-6,000 holdings (79).
Here is the relationship between number of holdings and 3-year annualized returns as of 4/30/2015:In “What Is Turnover Rate?” I wrote:
Because active fund managers are… Read More