Salient to Investors:

Research finds that, among US-based fund managers, a Brazilian-born manager who speaks fluent Portuguese and is familiar with the country’s business culture had better results when investing in Brazilian companies than a German-born manager.

Quoc Nguyen at University of Illinois found:

  • US funds that overweight stocks from the local ethnic group’s home country outperform otherwise similar mutual funds by 1.4% per quarter in their international holdings.
  • Funds which held main offices in communities that had a high concentration of a specific ethnicity held 14 percent more in stocks from that ethnicity’s home country than peers. When there was no such concentrated community, the funds invested 9 percent more in the manager’s ethnic homeland than otherwise similar funds.
  • Outperformance was stronger among managers whose families come from emerging-markets nations.
  • The ethnicity effect is strongest in funds that invest primarily in the US but dabble in foreign stocks versus funds that invest exclusively overseas.

Alec Walsh at the Harding Loevner Equity Fund disagrees, saying:

  • Home bias can blind money managers to investment opportunities outside their comfort zone.
  • Knowledge leads to overconfidence about your abilities to forecast the future.
  • World markets have become increasingly homogenous in the last 20 years thanks to the Internet and globalization.
  • In certain countries, having a native on staff is an advantage.

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