Free 7-day Trial
All Articles and Columns »

Less is More: The Benefits of a Concentrated Portfolio

May 05, 2011 | About:

When purchasing stocks, the Mundoval Fund follows a conviction-based investment process. When we uncover what we feel is a solid value investment, we put meaningful assets into the company. The result is a portfolio concentrated in about 30-40 of our best stock ideas.

By comparison, the average fund in our Morningstar World Stock peer group holds 147 different equities, over four times the number of companies held in Mundoval.1
While diversifying investments can have positive effects, mutual funds that are spread too thin run the risk of diluting the returns of their top stock selections. In fact, several studies have linked concentrated portfolios to greater performance over time:

  • Emory University professors found that portfolio managers who ran concentrated portfolios outperformed more diversified funds by 4% each year.2

  • Yale researchers developed a measurement called “Active Share” to determine the proportion of a mutual fund that did not overlap with its index. More concentrated funds generally held fewer stocks in common with their index and scored a higher active share as a result. The study further found that concentrated, high-active share funds consistently outperformed more diversified funds and their benchmarks, even after fees.3
When it comes to mutual fund stock holdings, less can be more.



1. Morningstar.com, Premium Fund Screener, April 2011. 2. Baks, Busse, Green, Fund Managers Who Take Big Bets: Skilled or Overconfident, Emory University, March 2006. 3. Cremers, Petajisto, How Active Is Your Fund Manager? A New Measure That Predicts Performance, Yale School of Management, January 2007.



You should consider the investment objectives, risks, and charges and expenses of the fund carefully before investing. The prospectus contains this and other information about the fund. You may obtain a

prospectus by calling 1-877-59-FUNDS. The prospectus should be read carefully before investing.





Rating: 2.5/5 (2 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Hide