Imitative Tendencies of Same-Benchmark Mutual Funds

Active share, as proposed by Cremers and Petajisto (2009) and Cremers (2017), represent the proportion of portfolio holdings that differs from the benchmark index holdings. I show that holdings represented by the active share could in fact be very similar with holdings of other same-benchmark funds. I measure this similarity as the overlapped non-benchmark holdings among two different funds and summarize them in an adjacency matrix, from which I evaluate the eigenvector centrality of each fund. Eigenvector centrality measures a fund's imitative tendencies, which increases if the fund has similar holdings with other funds that have high imitative tendencies. I show that eigenvector centrality captures a fund's tendency to imitate past holdings of other successful same-benchmark funds. Even after controlling for active share, high centrality funds generate higher future risk-adjusted performance and record lower management fees and expense ratios, compared to their low centrality peers