Abstract
We study how mutual fund managers gain an edge in selecting stocks in an era of globalization. We use textual analysis to construct a new measure that captures a mutual fund's offshore exposure concentration through holding U.S. multinational firms. The proposed offshore concentration index (OCI) is distinct from existing measures of investment skills. More importantly, funds with a higher offshore concentration index are associated with significantly better fund performance, with the difference in four-factor alpha between the top and bottom OCI deciles amounting to 2.95% per annum. Fund managers' overweighing of firms with operations in certain countries can be partly attributed to their foreign ethnicity. Our study uncovers an important source of fund manager skill, which is of particular importance in an era of globalization