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Relevance of Portfolio Holdings: 3 Concentrated Funds to Buy & Sell

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In our previous article we discussed how concentrated mutual funds rely on the limited numbers of stock holdings that they own. Focused funds invest in a limited number of companies, rather than having a diversified portfolio. In this context, we showed how Sequoia Fund ( SEQUX ), which has slumped nearly 70% since Oct 18, has learnt a lesson for its nearly 30% exposure to Valeant Pharmaceuticals.

We also spoke of funds such as Fairholme Allocation ( FAAFX ) and Fidelity Select Computers Portfolio ( FDCPX ) that have gained on the strong performance of its core holdings. However, both FAAFX and FDCPX had a relatively higher number of total issues in stock holdings.

Read: Concentrated Mutual Funds: Leaving Too Much to Luck

The number of holdings in a portfolio may be considered one of the measures of portfolio risk. A lower number of total issues will indicate that the fund is more concentrated and is thus more vulnerable to fluctuations in these holdings. So, if a fund invests in just five stocks, it is highly susceptible to fluctuations in them.

Though northward bound stock holdings brighten the prospects of concentrated funds, the advantage of portfolio diversity is denied. In case of a well-diversified portfolio, losses in some stocks may be offset by gains in others. In addition to the number of holdings in a portfolio, the percentage of assets invested in stocks is also crucial. A fund with the bulk of its assets invested in a particular stock is most likely to be guided by the performance of that stock.

This time, let's look at three Sell-ranked concentrated mutual funds that have total issues in the stock holdings below 30 and have underperformed in recent times. For investors ready to gamble, we will also pick three Buy-ranked concentrated mutual funds that have outperformed broader markets despite holding a limited variety of stocks in its portfolio.

3 Sell-Ranked Concentrated Funds

These mutual funds either carry a Zacks Mutual Fund Rank #4 (Sell) or Zacks Mutual Fund Rank #5 (Strong Sell) and have total issues in the stock holdings below 30. These funds have underperformed over the year-to-date and 1-year periods. The minimum initial investment for these funds is below $5000.

Fidelity Select Utilities Portfolio ( FSUTX ) seeks capital growth over the long run. FSUTX invests the lion's share of its assets in common stocks of companies primarily involved in the utilities sector, and companies that derive the major portion of its revenues from operations related to this sector. FSUTX invests in both U.S. and non-U.S. firms.

FSUTX currently carries a Zacks Mutual Fund Rank #5. The number of holdings in FSUTX's portfolio is 24. FSUTX has lost 11.3% year to date and is down 10.6% over the last 1-year period. FSUTX's top 3 holdings include NextEra Energy ( NEE ), Exelon ( EXC ) and Sempra Energy ( SRE ) and the fund has invested respectively 15.7%, 12.8% and 10.5% in them. NextEra Energy, Exelon and Sempra Energy have lost 4%, 20.8% and 7.3%, respectively, so far this year.

Tocqueville Select ( TSELX ) invests in a focused number of small and mid-sized domestic companies. TSELX normally invests in a focused group of 30 stocks. A maximum of 25% of its assets may be invested in non-US securities.

TSELX currently carries a Zacks Mutual Fund Rank #4. The number of holdings in TSELX's portfolio is 27. TSELX has lost 10% year to date and is down 8.2% over the 1-year period. TSELX's top 3 holdings include Web.com Group, j2 Global ( JCOM ) and Minerals Technologies (MTX) and the fund has invested 6.2%, 5% and 4.8% in them, respectively. While Web.com Group andj2 Global have gained respectively 29.6% and 32.4% year to date, Minerals Technologies has lost 12.1%.

AMG SouthernSun Small Cap Investor ( SSSFX ) invests in common stocks of small cap US firms. Market capitalizations of these companies (at the time of purchase) are within the capitalization range of firms listed in the Russell 2000 Index.

SSSFX currently carries a Zacks Mutual Fund Rank #5. The number of holdings in TSELX's portfolio is 26. SSSFX has lost 12% year to date and is down 15.3% over the 1-year period. SSSFX's top 3 holdings include AGCO Corp ( AGCO ), Darling International ( DAR ) and Centene Corporation ( CNC ) and the fund has invested 5.7%, 5.3% and 5.2% in them, respectively. So far this year, while AGCO and Centene have gained a respective 7.5% and 14.5%, Darling International has lost 48.6%.

3 Buy-Ranked Concentrated Funds

A counter argument in case of concentrated funds is that well-chosen stock picks that are surging can also translate into significant gains for mutual funds. So, for investors ready to bet, below are 3 mutual funds that either carry a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) and have total issues in the stock holdings below 30. These funds have garnered decent gains over the year-to-date and 1-year periods. The minimum initial investment in these funds is below $5000.

Davis Financial A ( RPFGX ) uses Davis Investment Discipline to invest a minimum of 80% of its net assets in securities issued by companies engaged in the financial services sector. These companies own financial services-related assets that are at least 50% of the value of total assets or earn a minimum of 50% of revenues from offering financial services.

RPFGX currently carries a Zacks Mutual Fund Rank #2. The number of holdings in RPFGX's portfolio is 28. RPFGX has gained 3.8% year to date and is up 5.6% over the 1-year period. RPFGX's top 3 holdings include Wells Fargo & Co ( WFC ), Markel Corporation ( MKL ) and American Express ( AXP ) and the fund has invested 8.9%, 6.9% and 6.6% in them, respectively. While Wells Fargo and Markel have gained 4.8% and 31.8% respectively year to date, American Express has lost 20.6%.

ICON Consumer Staples A ( ICRAX ) invests most of its assets in equities of companies belonging to the Consumer Staples sector. ICRAX may invest in common stocks and preferred stocks of companies of all sizes.

ICRAX currently carries a Zacks Mutual Fund Rank #2. The number of holdings in ICRAX's portfolio is 23. ICRAX has gained 2.6% year to date and is up 5% over the 1-year period. ICRAX's top 3 holdings include CVS Health (CVS), Reynolds American ( RAI ) and Tyson Foods ( TSN ) and the fund has invested 8.3%, 7.3% and 7% in them, respectively. Year to date, Reynolds American and Tyson Foods have gained 46.7% and 11.7%, while CVS Health has lost 2.5%.

Smead Value Investor ( SMVLX ) keeps roughly 25-30 firms in its portfolio and invests in common stocks of large-cap firms.

SMVLX currently carries a Zacks Mutual Fund Rank #2. The number of holdings in SMVLX's portfolio is 26. SMVLX has gained 4.9% year to date and is up 7.9% over the 1-year period. SMVLX's top 3 holdings include NVR Inc ( NVR ), Amgen ( AMGN ) and Tegna ( TGNA ) and the fund has invested 6%, 5.9% and 5.8% in them, respectively. NVR, Amgen and Tegna have gained 29.6%, 2.1% and 10.6% respectively year to date.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the Zacks Rank.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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