Target date fund

Investment fund

Macroeconomics

Financial system

Microeconomics

Foreign direct investment

Sovereign wealth fund

Income fund

Manager of managers fund

Closed-end fund

Economics

Open-end fund

Fund of funds

Market liquidity

Business

Corporate governance

Fund administration

Monetary economics

Profitability index

Institutional investor

Finance

Mutual fund

Profit (economics)

Journal of Banking & Finance

We find that mutual funds holding a larger concentration of high gross profitability stocks generate better future performance. The outperformance of these funds is not driven by a profitability-related risk premium and is not a byproduct of fund managers' exploitation of other well-known investment strategies. We show that fund managers who trade on the gross profitability anomaly possess greater skill and create value by attracting future fund inflows and by growing fund assets under management. We contribute to both the mutual fund and market anomaly literatures by providing strong evidence that a sizable subset of mutual fund managers profit from an important market anomaly.

Gross profitability and mutual fund performance