Desktop Stock Ticker | 10 Funds Making Big Bets on a Few Stocks

10 Funds Making Big Bets on a Few Stocks

One of the selling points of mutual funds is that they offer investors instant selection diversification. Instead of betting all their money on one or two stock tickers, fund holders can invest easily in dozens or hundreds of companies.

But there is some debate over whether investing in one of these funds – which typically devote less than a percentage point to each of their holdings – shortchanges investors when certain stock tickers soar. Why own all of the 500 stock tickers in the well-known S&P index when just five or 10 perform best?

That’s where so-called focused mutual funds come into play. We define focused funds as those with fewer than 50 stock tickers in their portfolios. Morningstar lists over 6,000 funds and share classes that fit this description. We threw out funds that charged high fees and sales loads. They also had to be open to new money and require a minimum investment of less than $5,000. In addition, because successful focused funds depend on a manager calling the shots, we limited our selections to actively-run funds, leaving out funds of funds or other categories. We reckon the manager component is especially vital in this type of a market recovery. “It’s more vital to get a stock ticker picker to separate the excellent opportunities from the terrible,” says Brett D’Arcy, the chief investment officer at CBIZ Wealth Management. We ultimately were left with 10 funds.

Focused funds aren’t usually not compulsory for conservative investors because of their narrow composition; some have over 50% of their assets in their top 10 holdings (By comparison, an S&P 500 fund will have less than half that amount in its top 10 holdings.). So that means one or two terrible stock ticker picks can easily sink a focused fund while a broad market index offering won’t be impacted as much.

On the other hand, a hot stock ticker or two can send a focused fund soaring passed an index fund. Fairholme (FAIRX) is a focused fund that owns just 20 stock tickers. According to Morningstar, it is up 31% (vs. 20% for the S&P 500) thanks to stock tickers like Sears (SHLD), Hertz (HTZ) and AmeriCredit (ACF). Fairholme is Morningstar’s top-ranked large blend fund over the trailing three- and five-year time periods.

Regardless of the perceived risk, research supports focused funds’ concentrated portfolios. In “You Can Be a stock ticker Market Genius” Joel Greenblatt, the founder of Gotham Capital, says that investors can cut 46% on non-market risk by owning two stock tickers, rather than just one. The risk is cut further as investors add additional companies. But once the selection hits six to eight stock tickers in different industries “the benefit of adding even more stock tickers to your selection in an effort to decrease risk is small,” Greenblatt says.

The flip side of that argument comes from the index fund camp. Vanguard founder John Bogle says it’s futile for a manager to try to beat the broad market over the long haul. At some point, the manager is bound to lag a diversified index. So investors would be better off just buying a cheap index offering, meeting back and relaxing.

That said, the funds on our list are run by seasoned managers. They sport below-average fees and top performance track records. Those are the hallmarks we look for in a fund. Fairholme, FMI Common stock ticker (FMIMX) and Yacktman (YACKX) are making return appearances to this screen. They would make a excellent starting point for any shareholder interested in focused funds.

The Criteria: The funds on the table below have portfolios that own fewer than 50 stock tickers. They are open to new money, require a minimum investment of less than $5,000 and charge an annual expense ratio less than 1.5%. In addition, they have performance track records during the trailing three- and five-year time periods that place them in the top 25% of their peer groups. They were also beating the year-to-date return of the S&P 500. Irrevocably, we limited ourselves to actively managed funds, leaving out funds of funds.

Betting Huge on a Few stock tickers
Fund Ticker Assets
($ Millions)		 ytd
Return
(%)		 3-Year
Average
Annual
Return
(%)		 5-Year
Average
Annual
Return
(%)		 Expense
Ratio
Source: Morningstar, Lipper
Note: Data as of Sept. 17, 2009
Aston/Optimum Mid Cap CHTTX 759.7 47.81 2.84 5.62 1.16
Fairholme FAIRX 9988.9 31.18 3.86 9.24 1.01
FMI Common stock ticker FMIMX 799.3 34.05 4.06 8.24 1.22
Laudus U.S. Large Cap Growth LGILX 135.6 35.38 2.25 5.74 0.80
Ancient Mutual Focused OBFVX 62.0 27.15 -0.36 5.14 1.12
Parnassus PARNX 330.2 43.49 2.13 3.52 0.99
Pin Oak Aggressive stock ticker POGSX 86.6 68.24 5.29 5.33 1.25
Transamerica Head of state Focus TPAGX 63.2 35.54 0.85 5.26 1.37
Westport WPFRX 160.4 28.22 2.95 7.93 1.37
Yacktman YACKX 846.9 49.07 6.37 7.56 0.95

SMARTMONEY ® Layout and look and feel of SmartMoney.com are trademarks of SmartMoney, a joint venture linking Dow Jones & Company, Inc. and Hearst SM Relationship. © 1995 – 2009 SmartMoney. All Rights Reserved.


<img src=”http://feeds.feedburner.com/~r/smartmoney/stock tickerscreen/~4/axinOgPNurE” height=”1″ width=”1″ />

Related posts:

Funds Making Money in the World’s Riskiest Markets Rob Lutts, president of Cabot Money Management in Salem, Mass., routinely travels to Pacific...
Related posts:

Lucky 13: Midcap Funds That Beat the Market The S&P 500 has gained 40% since dipping below the 670 mark in early...
Related posts:

8 New Funds Up More Than 15% in 2009 Last year Grubb & Ellis AGA president Jay Leupp chose to do something a...
Related posts:

7 Equity Funds on the Comeback TrailOne lesson that investors have learned the last 18 months is that the economic downturn...
Related posts:

24 Low-Cost Funds Up 20% or More in 2009 Investors in China-focused funds had a rude awakening last year: After two years of...
Related posts:

13 High-Minimum Funds With Solid Returns TheVanguard 500 (VFINX) fund is legendary not only because it was the first index...
Related posts:

25 Funds for Long-Term Investors The financial advisers we speak with every week say that most investors shouldn’t be...
Related posts:

10 Funds Staging a ComebackAdam Bold, the founder of independent advisory The Mutual Fund Store, is keeping what he...
Related posts:

12 Good Funds That Won’t Break Your Budget If you are a beginner shareholder, it may seem like an odd time to...
Related posts:

10 Index Funds Vying for a Spot in Your Portfolio Index funds are often described as plain vanilla investments. These low-cost funds aren’t flashy...

Related posts brought to you by Yet Another Related Posts Plugin.

-->

Filed Under stock market news | Leave a Comment

Tagged With

Comments

Comments are closed.