This paper studies portfolio strategies that invest in equity mutual funds, incorporating predictability in (i) manager selectivity and benchmark timing skills, (ii) fund risk loadings, and (iii) benchmark returns. Ultimately, we provide new evidence on the promise of equity mutual funds by assessing both the ex ante investment opportunity set and the ex post out- of-sample performance delivered by predictability-based strategies. Our framework for forming investment strategies builds on methodologies developed by Avramov (2004) and Avramov and Chordia (2005b). We do bring several methodological contributions, however, especially in modeling manager skills. .
