One of the best things about mutual fund investing is that once you find top-notch funds in which to invest, you can relax and let the professional managers decide what to buy and sell and when to do so. Most of your work is done. The downside is that unless you pay close attention, you probably won't really know what you're actually invested in. This can even happen to people who spend a lot of time thinking and writing about mutual funds, like Roy Weitz of FundAlarm.com.
Weitz recently ran his fund holdings (as of the end of 2005) through a portfolio "x-ray" tool, powered by Morningstar.com, that he found at T. Rowe Price's
- He had more foreign stocks in his health-care-focused fund (28%) than in his "global technology" fund (7%). Note that "global" funds generally hold both U.S. and foreign securities, while "international" funds invest mainly outside the U.S.
- Some 27% of his overall fund holdings were in financial services companies, with only a little of that in his financial sector fund. So his other, more diversified funds were invested rather heavily in financial enterprises.
- He also discovered that: "Based on my pro-rata share of each fund's portfolio, my largest individual stock holding is Red Hat
(NASDAQ:RHAT), the Linux company. My other large stock holdings, in descending order, are Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Tyco International (NYSE:TYC), and eBay (NASDAQ:EBAY)-- not necessarily the portfolio I would have selected, but I guess that's why I hire managers."
As Weitz learned, it's worthwhile to occasionally check in on your funds' holdings. You may think you've invested in a conservative value fund, only to find it full of companies that strike you as overpriced and risky. Consider Legg Mason's
If you'd still rather not think much about your funds, then consider investing in a broad-market index fund, which is a kind of mutual fund. Then sit back and earn the market's average return, a not-too-shabby average of 10% over the long haul.
If you want to do even better than that, look for exceptional funds with solid long-term track records and attractive prospects. They are out there, though they're in the minority. We'd love to introduce you to many of them via our MotleyFoolChampion Funds newsletter. Try it for free and see which funds our analyst Shannon Zimmerman is recommending and has recommended -- and why. Together, his picks have more than doubled the market's return (as of the last time I checked), gaining an average of 21% vs. 10% in the same time period. Out of about 36 picks, only two were underwater, by no more than 2.1%.
Learn much more in these Zimmerman articles:
- The Case for Mutual Funds
- Slam-Dunk Mutual Funds
- You're Paying How Much?
- Champion Funds Still Beating the Market
- Three Reasons to Sell
Longtime Fool contributor Selena Maranjian owns shares of Amazon.com, eBay, and Microsoft. The Fool has a disclosure policy.