Focused Funds: Understanding Concentrated Investing Strategies

Investing in a focused fund presents investors with an alternative to the traditional mutual fund. This type of fund is not nearly as diversified as a regular mutual fund and presents you with different benefits. Here are the basics of the focused fund and how it works.

The Focused Fund

The focused fund is a fund that holds a small number of securities in large volume. For example, instead of holding hundreds or thousands of different stocks in small quantities like many mutual funds do, the focused fund may only hold 20 different stocks, with a large volume of each. This makes the focused fund not nearly as diversified as a traditional mutual fund and can increase risk.

Quality, Not Quantity

The basic idea behind the focus fund is that you are going for quality investments, not a quantity of bad investments. Therefore, these funds rely on expert investment selection, instead of picking stocks at random. In theory, this could be a good idea. However, this often increases the volatility of the fund and makes it unpredictable. Therefore, this type of investment is not for the passive investor, but can help you grow your portfolio rapidly. Be prepared for a lot of movement with this fund.