In Survivorship Bias, David McRaney writes:
In finance, this is a common pitfall. The economist Mark Klinedinst explained to me that mutual funds, companies that offer stock portfolios, routinely prune out underperforming investments. “When a mutual fund tells you, ‘The last five years we had 10 percent on average return,’ well, the companies that didn’t have high returns folded or were taken over by companies that were more lucky.” The health of the companies they offer isn’t an indication of the mutual fund’s skill at picking stocks, said Klinedinst, because they’ve deleted failures from their offerings. All you ever see are the successes.
Is this true? Do mutual funds edit/censor underperforming investments to make their returns look better, and if so, is there any way one can figure out if they are doing it?