What is focused fund?
A focused fund represents a distinct category within the mutual funds, distinguished by its investment strategy in a limited pool of securities that share certain common traits. Unlike diversified funds, which spread their investments across various sectors and industries, focused funds channel their resources into a select group of companies or sectors. Typically, a focused fund's portfolio comprises 20-30 securities or even fewer, in contrast to the extensive holdings of a diversified fund, which may exceed 100 securities. The primary objective of focused funds is to attain superior returns by strategically investing in a carefully chosen set of securities believed to have the greatest potential for growth.
Understanding Focused Funds
Focused Funds limit their stock investments: Typically, mutual funds can vary in the number of stocks they include within their portfolios, with equity mutual funds commonly holding between 50 to 100 stocks, depending on their investment objectives. Contrarily, a focused mutual fund strictly confines its holdings to a maximum of 30 stocks. In technical terms, this approach implies managing a concentrated portfolio that concentrates investments in a select few stocks.
No investment constraints on sectors: Focused funds are unrestricted in their choice of investment avenues, enabling them to allocate funds across a diverse array of companies spanning various sectors and market capitalizations.
Consequently, these funds are comparable to multi-cap mutual funds, albeit with a more limited number of stocks. Fund managers retain the flexibility to determine the allocation of funds across large, small, and medium-cap companies.
Advantages of Focused Fund
They are based on thorough research: The fund managers who select the stocks for focused funds do a detailed analysis of the companies before investing in them. They choose the ones that have the potential to provide high returns to the investors.
They can offer higher returns: Focused funds are risky investments, but they can also be very fruitful. By investing in a few selected stocks, focused funds can maximize their capital gains more effectively than other mutual funds that invest in many stocks.
They avoid underperforming stocks: Other mutual funds may invest in some stocks that do not perform well, which can lower their returns. Focused funds avoid this problem by limiting their investment to a few stocks that they believe are the best