Focused funds have been gaining traction lately among investors who prefer a more straightforward, concentrated approach to equity investing.
They are far different from diversified funds that hold numerous stocks. Focused funds generally stick to a few carefully chosen companies.
For the kind of investor who likes clarity, discipline and a well-thought-out equity allocation, focused funds offer a real advantage. So, here are 5 key reasons why you might want to give them a closer look.
1. Targeted Portfolio Construction
Focused funds stand out by investing in a concentrated portfolio of just 20–30 stocks. This allows managers to put significant capital in highest-conviction investments, rather than spreading funds thinly.
This concentrated approach lets each of those selected companies make a real difference to the overall performance of the portfolio. Plus, fund managers spend more time analysing each business in depth.
2. Opportunity for Long-Term Returns
Because focused funds are all about finding high-quality companies with great fundamentals and really getting behind them, they have a good shot at delivering attractive long-term results. When those selected companies do well, the impact is much bigger in a focused fund.
It is especially suited to investors who are interested in thematic or high-growth opportunities. For instance, if a fund manager spots some new trends in emerging industries, they can go after those ideas.
3. Alignment With Investing Principles
Some focused funds do a lot of research and then carefully select stocks based on the principles of growth or value investing. The managers dig in to find companies that are well below their real value, and then they hold on to them until the market finally catches on.
This ‘wait it out’ strategy often works amazingly well for those investors who can sit tight through market ups and downs.
4. Better Transparency
With just 20 to 30 stocks to keep track of, you can get a good sense of how the whole portfolio is working out, where you stand and what sectors you are exposed to.
You don’t have to be an expert to see if this fund is still in sync with your goals and risk tolerance. Similarly, you can easily assess if the fund manager’s outlook remains in line with your goals.
5. Balanced Diversification
Focused funds are often diversified to keep you safe from taking on too much risk in any one company. They keep the risk in check while still giving your investments room to breathe.
For instance, some of the top focused funds have a mix of big established companies that are reliable and mid-sized ones with growth potential. They may also add a few smaller companies that could grow in the future.
Who Should Consider Focused Funds?
Focused funds are a suitable fit for those investors who:
● Like the idea of a portfolio that is carefully narrowed down to a few stocks after research
● Have the patience to ride out the ups and downs of the market.
● I amn’t easily bothered about the volatility in the short term.
Final Thoughts
In a nutshell, focused funds are about finding that sweet spot between conviction, research and long-term growth. By sticking to a small number of companies, they are able to deliver competitive results while still keeping some level of diversification.
Whether you are a fan of growth-driven stock-picking or think that the best way to make money is through value investing, these funds let you build a portfolio around your beliefs