This paper examines the relationship between industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 1999. The authors construct portfolios of funds with different industry concentration levels and measure the extent of portfolio concentration using the Industry Concentration Index (ICI). They find that more concentrated funds tend to outperform diversified funds, both before and after adjusting for risk and style differences using various performance measures. The results are robust to different performance metrics, including the four-factor model of Carhart (1997), the conditional factor model of Ferson and Schadt (1996), and holding-based performance measures. The study also analyzes the trades of mutual funds, finding that the stocks purchased by concentrated funds tend to outperform the stocks sold, with the difference in returns increasing with industry concentration. Overall, the findings suggest that investment ability is more evident among managers who hold portfolios concentrated in a few industries, supporting the value of active fund management.This paper examines the relationship between industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 1999. The authors construct portfolios of funds with different industry concentration levels and measure the extent of portfolio concentration using the Industry Concentration Index (ICI). They find that more concentrated funds tend to outperform diversified funds, both before and after adjusting for risk and style differences using various performance measures. The results are robust to different performance metrics, including the four-factor model of Carhart (1997), the conditional factor model of Ferson and Schadt (1996), and holding-based performance measures. The study also analyzes the trades of mutual funds, finding that the stocks purchased by concentrated funds tend to outperform the stocks sold, with the difference in returns increasing with industry concentration. Overall, the findings suggest that investment ability is more evident among managers who hold portfolios concentrated in a few industries, supporting the value of active fund management.