We examine whether superior understanding of technological innovation is a source of mutual fund managers’ ability to garner positive abnormal returns. Consistent with our hypothesis, the inter-quintile annual net Carhart alpha spread for mutual funds sorted on changes in the technological similarity (TS) of their portfolio holdings is 282 basis points. Moreover, because changes in TS are largely orthogonal to other predictors of mutual fund success (e.g., industry concentration, active share, fund R 2 , and lag fund alpha), changes in TS can be combined with other measures to help identify the best performing funds.

We study how mutual fund managers gain an edge in selecting stocks in an era of globalization. We use textual analysis to construct a measure that captures a mutual fund's offshore exposure concentration through holding US multinational firms. We find that funds with a higher offshore concentration index (OCI) perform significantly better, with the difference in four-factor alpha between the top and bottom deciles amounting to 2.95% per annum. Fund managers’ overweighting of firms with operations in certain countries can be partly attributed to their foreign ethnicity. High OCI fund managers have an information advantage regarding firms’ fundamentals, such as earnings.