Stock-Picking Takes Concentration

Still, that wisdom comes from the ivory tower, and some investment advisers that say things play out differently on the Street.

Picking a concentrated portfolio fund is risky, in much the same way that buying one stock makes your investment dependent on one company's performance.

Concentrated portfolio funds, which Tjornehoj says generally have 30 or fewer stocks, are the clearest example of how managers make their case against overdiversification. They notch big gains when their stocks go up, and they have big dips as the same stocks drop.

"But when you get into this area, there are some very good concentrated portfolios and some particularly bad ones," he warns.

Tjornehoj says investing in them means taking on more risk, but some of these stock-picking funds have put up enviable numbers.

There's the Marsico Focus Fund(MFOCX Quote), a $2.78 billion mutual fund run by Thomas Marsico, who previously headed the Janus Twenty(JAVLX Quote) fund. Marsico rotates about 90% of his stocks each year, and he currently has UnitedHealth Group (UNH Quote) and Intel (INTC Quote) as the fund's top holdings. While the fund is down 1% against the S&P 500 for the year to date, it is up 27% since the start of 2003, which is 3.3% above the key stock index. Over the past three years, it's up 2.43%.

The Marsico fund charges 1.34% a year, a fairly high price for a mutual fund.

The Janus offering deserves mention as well, outperforming the S&P 500 by 4.7% for the year to date, and topping the index by 3.8% since the start of 2003. Its three-year return isn't as strong -- it's down 1.92% against the S&P's 0.62% gain. It rotated fewer stocks than Marsico did last year, when it posted a 44% turnover. Its top holdings include eBay (EBAY Quote) and UnitedHealth.

Less is More A concentrated funds snapshot
Fund or Index	Ticker	YTD %	3 Year %	5 Year %	Expense Ratio %
American Heritage	AHERX	44.44	-6.69	-15.40	10.00
Janus Twenty	JAVLX	5.53	-1.92	-8.42	0.83
Marsico Focus	MFOCX	1.01	2.43	-0.19	1.34
S&P 500	SPX	1.69	0.63	-1.20	-
Returns through 4/125/2004. Source: Lipper, Morningstar, S&P