Focused Fund

What Is a Focused Fund?

A focused fund is a mutual fund that holds a only relatively small variety of stocks or bonds that are similar along some dimension. By definition, a focused mutual fund focuses on a limited number stocks in a limited number of sectors, rather than holding a broad or diversified mix of positions. Focused funds tend to hold positions in roughly 20-30 companies or less, unlike many funds which hold positions in well more than 100 companies.

Understanding Focused Funds

Mutual funds are often marketed as a good way to diversify a portfolio of investments. Indeed, most mutual funds are designed to hold a position in a large number of companies, with various pre-defined weights, saving the investor the trouble of selecting each security individually. This diversification allows an investor to gain access to the equity risk premium while minimizing risk and volatility.

However, some investors feel that diversification can also limit returns by spreading money from several sectors or companies, not all of which are likely to outperform at the same time. If an investor feels strongly that a certain sector or industry will outperform shortly, they can increase returns by concentrating investments in that sector.

Many sector ETFs have the characteristics of a focused fund.

Focused funds allocate their holdings between a limited number of carefully researched securities. Although they do not experience the benefits of diversification because of the "search for quality" strategy, focused funds rely on research expertise for the above-average stock picking. As a result, returns tend to be more volatile. This fund is also known as an "under-diversified fund" or "concentrated fund."

Example of a Focused Fund

The Fidelity Focused Stock Fund has the following principal investing strategies:

The Fidelity Focused Stock Fund had a 10-year annualized return of 10.12%, as of April 30, 2018, compared to 9.02% for its benchmark, the Standard & Poor’s 500 index. The Fidelity Focused Stock Fund has a gross expense ratio of 0.57%. Its 10 largest holdings, as of April 30, 2018 were:

Combined, these ten holding accounted for 53.22% of the total fund.