How good are Norwegian fund managers at overweighting and underweighting stocks?

Abstract

The thesis investigates the stock-picking abilities of Norwegian fund managers, focusing on whether their overweight and underweight portfolios contribute to excess return. We find that the main driver of excess return in the portfolios is the underweighting strategy. For "best ideas" portfolios, the overweight positions generate the highest excess return. Overall, when comparing different portfolios, the AUM-weighted portfolio underperforms the equal-weighted portfolio. The only exception is the "best ideas” underweight portfolio, which outperforms the equal-weighted approach. Additionally, three out of four "best ideas" portfolios improve their returns by using an equal weighted approach instead of a manager-weighted approach. When funds are divided into size categories, medium-sized funds achieve the best performance among the overweight portfolios, while large funds perform the best for the underweight portfolios. Overall, this implies that fund managers should increase the concentration in their largest overweight positions, financing this by reducing smaller underweight positions and/or increasing their exposure to underweights.