It’s Not Fun, but You Should Keep Tabs on Your Funds’ Holdings
At a financial advisor conference late last year, Foster Friess was asked to name the largest current stock positions in the Brandywine Fund, the $6-billion mutual fund he manages.
Friess thought about it for a moment but declined to provide the information, instead suggesting that the questioner look up Brandywine’s largest holdings in the fund’s most recent shareholder report--already more than a month out of date.
“I don’t want to tell you what my top holdings are, because then you would go out and buy those stocks, not the Brandywine Fund,” he said.
Friess isn’t the only fund manager reluctant to divulge more information about favorite stocks than regulators require. Although a listing of top holdings can help investors determine whether a fund owns companies suitable for their investment goals, the information can also be misleading.
For starters, fund companies are required to reveal their holdings just twice a year. By the time a shareholder report is written, reviewed, printed and mailed, several weeks may have elapsed--and the portfolio may already have changed. (Of course, timeliness is more of a problem with funds run by managers who do a lot of trading.)
Some fund groups, such as Fidelity Investments, disclose their holdings each month, and shareholders can often obtain updated information more quickly by telephoning a firm or checking its Internet site. Although still delayed information, these efforts make it easier to keep up.
A second, more subtle hazard is that the top holdings might not truly reveal where the portfolio is heading.
“A fund’s largest holdings are subject to change and may be a function of liquidity,” says Glenn Fogle, who runs American Century-Twentieth Century Giftrust in Kansas City, Mo. In other words, a manager may need several days or weeks to buy a desired quantity of shares in a small stock without bumping up its price. The new shift might not yet be reflected in the top-holdings list.
Thus, “the largest holdings might not be my favorite stocks,” Fogle says.
Then there’s the danger of complicating your life by over-analyzing a portfolio’s composition. Many people buy mutual funds because they lack either the time or expertise to select individual stocks. So why bother second-guessing your fund manager?
These caveats aside, there are some basic things worth checking with at least a cursory glance at a fund’s latest portfolio listing:
* Small-stock versus large-stock theme. If you own a large-company stock fund, as a rule you should be able to recognize most of the stocks in the fund. By contrast, most of the names in a small-company portfolio will probably be unfamiliar.
If you can’t recognize many of your large-company fund’s names--or recognize too many of your small-company fund’s--it may mean the fund isn’t what you thought it was.
* Growth theme versus value theme. Some funds focus on companies showing rapid profit increases--the so-called growth stocks--whereas others seek beaten-down bargains using a “value” approach.
Research publications such as Morningstar Mutual Funds and the Value Line Mutual Fund Survey calculate a fund’s average yield, price-to-earnings ratio and other indicators based on individual stock holdings. Growth portfolios tend to buy stocks with high P/Es and price-to-book ratios and low dividend yields. Value funds tend to low for low P/Es and higher yields.
Unfortunately, the lines between the two camps aren’t always clear, especially when a stock was purchased by different funds at different times. “Maybe your growth and value managers both hold Intel, but for different reasons,” says Richard G. Cohen, a Smith Barney financial consultant in Westwood.
Even so, at the very least you should have a sense of whether a fund is more growth- or value-oriented.
* Sector weightings. Sometimes broadly diversified funds make big bets on particular industries--such as technology.
There’s nothing necessarily wrong with that. But as a shareholder, it’s a good idea for you to know if a manager is heavily weighting a single industry, because that may be increasing the risk entailed in owning the fund.
* Domestic versus foreign stocks. If you bought an international stock fund specifically for foreign diversification, it’s a good idea to make sure the fund manager isn’t heavily favoring U.S. stocks for the portfolio. Some do--which means you may not have as big a foreign bet as you thought.
* Stocks versus bonds. Another revealing sign is a fund’s breakdown of stock and bond holdings. Unless you hold a balanced or asset-allocation fund, you shouldn’t see significant weightings in both categories within the same portfolio.
If you plan to analyze a fund’s top holdings, be sure to do the same for each of your funds. A lot of overlap among portfolios might mean you have less diversification than you expected.
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Top Mutual Funds by Category
The funds with the best performance in the last 12 months in two major categories. Three- and five-year returns are annualized.
GROWTH AND INCOME
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Sales Expense Total % re Fund Ticker chg (%) ratio (%) NAV 1-yr 3-yr Selected Funds: SLASX NL 1.09 23.23 +36.1 +23.7 Am Share Thornburg Fds: TVAFX 4.50 na 16.44 +33.8 NS Value UAM Funds: STEQX NL 0.99 16.82 +33.5 +18.0 Sterling Equity Rey BC RBCGX NL 1.50 26.01 +32.7 +21.8 Advantus Funds: ADCFX 5.00 1.26 16.05 +31.5 NS Cornerstone Legg Mason: LMTRX NL 1.95 20.25 +31.5 +18.9 Total Return Goldman Sachs Port: GSGRX 5.50 1.20 24.05 +30.1 +21.0 Growth Inc Salomon Brothers: SINAX 4.75 0.94 19.92 +29.9 NS Inves Stagecoach: PCGWX 4.50 1.18 15.19 +29.4 +16.3 Equity Value RSI Trust: RSIVX NL 1.22 47.04 +29.2 +21.5 Value
turn Fund 5-yr Selected Funds: +16.9 Am Share Thornburg Fds: NS Value UAM Funds: +16.4 Sterling Equity Rey BC +12.8 Advantus Funds: NS Cornerstone Legg Mason: +17.1 Total Return Goldman Sachs Port: NS Growth Inc Salomon Brothers: NS Inves Stagecoach: +17.5 Equity Value RSI Trust: +15.8 Value
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STOCK AND BOND
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Sales Expense Total % re Fund Ticker chg (%) ratio (%) NAV 1-yr 3-yr Offitbank Funds: OFLTX NL na 13.25 +48.8 NS LatATR Muhlenk MUHLX NL 1.40 29.87 +35.7 +20.4 Davis Funds A: RPFCX 4.75 1.14 22.54 +32.1 +17.7 CvtSec C&OMkOpp; COAGX NL 1.56 15.24 +26.7 +13.9 Flag Investors: FLVBX 4.50 1.31 17.96 +25.8 +20.2 Value Thompson Plumb Fds: THPBX NL 1.45 15.24 +25.2 NA Balanced UAM Funds: FPACX NL 1.59 13.67 +25.2 NA FPACres PaineWebber A: PWTAX 4.50 1.17 19.52 +25.1 NA TctAll Oppenheimer A: OPGIX 5.75 1.52 16.41 +24.6 +12.2 GlGr Aetna Select: ASCEX NL 1.73 12.67 +24.4 NS Ascent
turn Fund 5-yr Offitbank Funds: NS LatATR Muhlenk +18.1 Davis Funds A: NS CvtSec C&OMkOpp; +14.0 Flag Investors: NS Value Thompson Plumb Fds: +11.1 Balanced UAM Funds: NS FPACres PaineWebber A: NS TctAll Oppenheimer A: +13.8 GlGr Aetna Select: NS Ascent
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Source: Lipper Analytical Services. Data as of market close Friday. Note: Only one class or variation of same fund listed. NA: not available; NAV: net asset value; NL: no load; NS: fund created during the period; i: special expense circumstance
Lipper / Associated Press fund category descriptions:
Growth and income: Combines a growth-of-earnings orientation with an income requirement for level and/or rising dividends.
Stock and bond (mixed portfolio): Invests in funds with a mix of stocks, bonds and/or money markets, or in bonds convertible to stock.
