The investment value of mutual fund portfolio disclosure

This paper shows that publicly disclosed mutual fund portfolio holdings have investment value. Our approach is based on the intuition that an overweighting by successful managers, or an underweighting by unsuccessful managers signals that a stock is currently underpriced. Investment strategies based on portfolio holdings, weighted by past fund performance, generate returns exceeding seven percent during the following year, adjusted for the size, book-to-market, and momentum characteristics of stocks. The return-predictive power of the models is not explained by the effect of fund herding or fund flows; rather, it is derived largely from the ability to predict firms' future operating profitability. Further, investment signals generated by the models are distinct from a large number of stock return signals documented by existing literature. Our results indicate that some fund managers have persistent skills in uncovering private information on fundamental stock values.