Is a Team Different from the Sum of its Parts?Evidence from Mutual Fund Managers

This paper provides the first empirical test of the diversification of opinions theory and the groupshift theory using real business data. Our data set covers management teams and single managersof US equity mutual funds. Our results reject the group shift theory and support thediversification of opinions theory: extreme opinions of single team managers average out and,consequently, teams make less extreme decisions than individuals do. We find that teams followless extreme investment styles and their portfolios are less industry concentrated than those ofsingle managers and that teams are eventually less likely to achieve extreme performanceoutcomes. These results hold after taking into account the impact of fund and familycharacteristics as well as manager characteristics. Additionally, teams exhibit a lower active shareand lower risk levels, driven by a lower level of idiosyncratic risk, as compared to single managedfunds.