Finding the Best Ideas in a Portfolio

(Hat Tip: Abnormal Returns)

I tried to get the professors to change the title to "Why you Need AlphaClone" but no luck so far.  The bolding below is mine.  1 to 4% per Q = over 4 to 16% per annum in alpha if you know where to look.  The Tiger Cubs popularity clone is beating the market this year by 20% (and has beaten by 15% per annum since ’00).

Best Ideas by Cohen, Polk, and Silli

Abstract:     

We examine the performance of stocks that represent managers’ "Best Ideas." We find that the stock that active managers display the most conviction towards ex-ante, outperforms the market, as well as the other stocks in those managers’ portfolios, by approximately one to four percent per quarter depending on the benchmark employed. The results for managers’ other high-conviction investments (e.g. top five stocks) are also strong. The other stocks managers hold do not exhibit significant outperformance. This leads us to two conclusions. First, the U.S. stock market does not appear to be efficiently priced, since even the typical active mutual fund manager is able to identify stocks that outperform by economically and statistically large amounts. Second, consistent with the view of Berk and Green (2004), the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers. We argue that investors would benefit if managers held more concentrated portfolios.