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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Do MFOers Look At The Holdings of Their Funds?

I sometimes read the comments here and wonder if many MFOers actually examine the portfolios of their funds. To me not doing so is liking eating something without reading the ingredients, (which a lot of people do as well by the way, to their detriment.) Yet I see a certain amount of performance chasing here that concerns me. It works until it doesn't, and the danger is not only overvaluation but also overlap. If you buy a tech stock laden emerging markets fund and a tech laden U.S. stock fund and a tech laden small cap fund, all of which have done well because of the pandemic, you may have very little diversification when the tech sector doesn't do well. It almost defeats the purpose of buying an emerging markets fund in some respects. Also, what happens when the momentum for a hot fund stops? There is a potential for a lot of people to get burned here.

Comments

  • Morningstar Portfolio Manager might be a good resource. It's a premium product, but some brokerage houses (such as T Rowe Price) offer it as a free benefit.

    https://morningstar.com/help-center/user-guide/portfolio-manager

    Also, determining how correlated your funds are to one another and the different sectors of the market is a worthwhile exploration. Morningstar again offers this tool in portfolio manager, but it can be found for free here (for stocks, ETFs, and indexes).

    https://unicornbay.com/tools/asset-correlations

    Here's an Asset Correlation Map (last 10 years):
    https://guggenheiminvestments.com/mutual-funds/resources/interactive-tools/asset-class-correlation-map
  • I certainly do examine the current (and past) holdings of a mutual fund before investing. I want to avoid asset duplication, sector duplication, and I also am wary of investing in companies whose behavior has been outstandingly and persistently illegal and/or immoral. And yes (!) I always read the ingredients of packaged food before I decide to buy or leave it on the shelf :-)
  • I make sure to check out the biggest holdings, which are not difficult to uncover, and the weight the fund holds in the market sectors: tech, financial, etc. But what I am mostly looking for is to see that the fund does not hold stocks in companies I hate. I call it my ethical filter. But of course, it's of limited value. Once I decide to invest in a fund, the Fund Manager is in charge, and I'm sort of a "back-bencher."

  • @Crash, This is my approach, too. Depending on when they were purchased in the fund, I particularly look for holdings that are not 'herd' companies in the top-10, which suggests groupthink and/or closet indexing.
    Crash said:

    I make sure to check out the biggest holdings, which are not difficult to uncover, and the weight the fund holds in the market sectors: tech, financial, etc. But what I am mostly looking for is to see that the fund does not hold stocks in companies I hate. I call it my ethical filter. But of course, it's of limited value. Once I decide to invest in a fund, the Fund Manager is in charge, and I'm sort of a "back-bencher."

  • Same as Ben in all regards. While my food allergies are the primary reason for examining packaged food labels my sector specific ETF's are always compared to my mutual fund holdings to minimize excessive duplications.
  • I use the same process as Ben.

    T. Rowe Price gotten cheap that certain Morningstar products are only available when you reach certain asset level. Portfolio X-ray was useful to see overlapping holdings.
  • Good! I don't want people getting hurt.
  • edited January 17
    We always verify current or possible holdings to discover what is inside. 'Course, the contents are subject to change somewhat over time frames.

    And to the proposition of an investment into SPY where many may presume an equal weight of holdings among 11 sectors. NOPE. Tis not a balanced U.S. equity holding. We hold 3 of these equity sectors: tech., healthcare and comm. services for our current choices.
    Sectors	Fund %	Cat %
    Basic Materials 2.42 2.61
    Consumer Cyclical 12.66 11.17
    Financial Services 13.90 13.42
    Real Estate 2.29 2.47
    Communication Services 10.26 10.21
    Energy 2.60 1.90
    Industrials 8.83 10.11
    Technology 23.82 22.81
    Consumer Defensive 6.78 7.99
    Healthcare 13.77 14.76
    Utilities 2.67 2.54
    SP-500 sector weighing

    Regards,
    Catch

  • What would be the purpose ultimately? You would bail or add depending on something you saw? Really?
    And you probably would do that anyway depending on performance over timespan (which for many investors has gotten shorter and shorter over the years).
    I do agree that it is helpful to know what you got into, but you should have done that anyway, beforehand.
    So what @Crash said. I want the chef to buy the ingredients and do the cooking and mixing or assembling. I eat the result. I am paying for the selection skills and judgment, and in the case of investment, tactics and decisions in response to circumstance.
  • I think yes to a certain degree if you bought an active fund you have to trust management knows what they're doing, but if you have a portfolio of active funds that all have similar sector, or worse, identical individual stock exposures, it could expose you to a lot of risk without your even knowing it. As cliche as the saying is, trust but verify does make sense. Know what you own and avoid inadvertent overexposure between funds.
  • edited January 16
    I use M* Portfolio X-Ray (Stock Intersection) to check holdings across my portfolio.
    It provides a decent "quick and dirty" view.
    However, it shows only the top 50 stocks overall and a fund's portfolio may be several months old.
  • What would be the purpose ultimately? You would bail or add depending on something you saw? Really?

    Absolutely I would, yes. Both single-stocks or general allocations, especially in their top-10 percentage.
  • edited January 14
    I ALWAYS look at the following: PM status/history, sector weightings, G/B/V and L/M/S splatters, top 10 holdings, SD, Sharpe, Sortino & Capture Ratios, 1-3-5-10 Yr TRs.
  • I'm definitely in Ben's camp, investments- and ingredients-wise.
  • It takes some real effort to avoid overlap in Large Cap/S&P500/Growth and Aggressive Growth funds. Almost all of the best ones have the usual suspects: AAPL, MSFT, FB, AMZN, TSLA, BRK... and many of them have Adobe, Tesla and Salesforce. Even my MGGPX has AMZN and ADBE
  • I agree. I try to avoid a lot of overlap. *Some* is inevitable but since all my stock funds are actively managed I know that the holdings will change and today's overlap will be tomorrow's "completely different".

    It takes some real effort to avoid overlap in Large Cap/S&P500/Growth and Aggressive Growth funds. Almost all of the best ones have the usual suspects: AAPL, MSFT, FB, AMZN, TSLA, BRK... and many of them have Adobe, Tesla and Salesforce. Even my MGGPX has AMZN and ADBE

  • @Ben In Large Cap Growth ... it's definitely inevitable. So true.
  • I always look at the top holdings of the funds I buy. I dont want a lot of duplication in the top holdings
  • Tracking the top holding also reveal whether the fund manager is doing "window dressing" at year-end. Some managers like to load up on winning stocks and dump the poor ones so that the optics look better. Some funds have low turnover rates while others have well over 100% annual turnover.

    Last year large cap growth stocks and gold did well, mainly due to the pandemic and hedging, while real estate and commodities trailed badly. Unless we get this pandemic under control with distributing of vaccines to the general population quickly, lockdowns are already happening across the globe.
  • Portfolio Visualizer and M* XRAY are good tools as well for checking.
  • Thank you. Did not know Portfolio Visualizer provides that level of details. I presume the data get refreshed every quarterly or when they are available from the companies.
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