Industry Concentration and Mutual Fund Performance: The Roles of Managerial Effort and Investor Behavior

This study examined how industry concentration structure can affect mutual fund performance under the dual channels of fund manager effort and investor erosion. Using quarterly data from Chinese equity and equity‐oriented hybrid funds from 2015 to 2022, the study investigated this relationship and its underlying mechanisms. The results show that greater industry concentration significantly improved fund performance. The positive effect stemmed from the interplay between managers' strategic efforts and the erosive impact of investor behavior. Mechanism analysis indicates that fund managers enhanced performance primarily through professional skill‐driven industry allocation strategies rather than informational advantages. Industry concentration also produced time‐lagged effects on performance. The effort‐driven component of concentration contributed positively to performance, whereas investor subscriptions and redemptions generated significant erosion effects. The results identify industry concentration structure as a critical determinant of fund performance, providing theoretical and empirical foundations for re‐evaluating fund performance sources.