JEL Code



Assets are leaving actively managed mutual funds at an unprecedented rate as investors have come to perceive that active management does not deliver value. Investor disappointment is generally attributed to the high fees and poor relative performance of the class, yet there is a deeper systemic issue at work. In the first part of this paper I argue that portfolio managers are unable to deliver value to investors because they generally do not consider the alpha-diluting opportunity costs of diversification (defined later) when constructing and managing their portfolios. In the second part of the paper I propose the introduction of a fund of concentrated fund (FoCF) structure that would allow investors to minimize the costs of diversification and capture significantly more alpha without compromising their ability to manage risk.

Submission Date

June 2020

Approval Date


Publication Date