If you're a good mutual fund investor, you look for funds with talented management, with long track records of outperforming the most relevant index, with low fees, and so on. In other words, you don't just look at a "Top Funds of 2005's Third Quarter" list and plunk your hard-earned money into the first listed fund. (That would be silly.) One way you might zero in on some outstanding funds is via our Champion Funds newsletter, which delivers promising ideas in print to your mailbox each month. (Try it painlessly for free.)
It can be smart to look even deeper into a fund before you invest in it, though. Reading through a fund's prospectus is a good idea, for example. Look up its top holdings, too, and see what you think.
On our Mutual Funds discussion board the other day, community member valuefanRLA made a good point when answering a fellow member's question and used large growth fund Chase Growth (FUND:CHASX) as an example:
"I looked at its top 10 holdings and noticed that the stocks it held are more consistent with my own philosophies than, say, Fidelity Contrafund (FUND:FCNTX). Now, many people like the Contrafund, and it has seen very good days. I, for one, looked at its current top holdings and cringed. Different style."
I looked up the Chase holdings myself and noted, first off, that the fund holds stock in only about 40 companies. A more focused fund can be good, since it's not spreading its assets as thinly as many funds do. The top 10 holdings also make up more than 35% of the fund's value. Here they are, as of the most recently reported quarter:
- UnitedHealth Group (NYSE:UNH)
- Burlington Resources
- WellPoint
- Johnson & Johnson
- Walgreen
- Cisco Systems
- Dell (NASDAQ:DELL)
- United Technologies
- Apache
- America Movil SA
In comparison, Fidelity Contrafund holds stock in more than 450 companies (!), and its top 10 holdings make up nearly 20% of its value. Here are its top 10:
- EnCana
- Genentech
- Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb)
- 3M (NYSE:MMM)
- Yahoo!
- Avon Products
- ExxonMobil
- Marvell Technology
- Aetna
If you're most comfortable investing in health-care and pharmaceutical companies, along with a smattering of computer/technology companies, the Chase Growth fund may indeed be better for you than the Contrafund, which runs the gamut from cosmetics to insurance to the Internet to oil to manufacturing.
If you don't want your money spread out over too many companies, that's another nod in Chase's favor. The bottom line here is that the more you learn about any funds you own or are thinking about buying into, the better off you'll likely be. Make sure your funds are a good fit for your investing style and temperament.
UnitedHealth Group and Dell are Motley Fool Stock Advisor recommendations. 3M is a Motley Fool Inside Value pick.
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Longtime Fool contributor Selena Maranjian owns shares of Berkshire Hathaway and Johnson & Johnson. The Motley Fool has a disclosure policy.
