Does Institutional Ownership Predict Mutual Fund Performance? An Examination of Undiscovered Holdings within 13(f) Reports

We show that institutional ownership in equity mutual funds predicts fund performance. Our measure of institutional ownership in mutual funds is directly from institutions' quarterly 13(f) filings so it provides a broader coverage of institutional investment in mutual funds than existing studies. Most institutions holding mutual funds are independent investment advisors and bank trusts who invest in mutual funds on behalf of their clients. Our results show that funds held by institutions perform better than funds not held by institutions for at least three years. Institutions' informational advantage is the main driver of the outperformance of institution-held funds