Mutual Fund Morning: Perfect 10s of Diversification

But which of these funds is the most diversified? One way to answer that is to look at the percentage of equity held in a fund's biggest sector, which is shown in the table. If the percentage is high, it means the fund is somewhat concentrated in that sector and, by definition, not as broadly diversified as it might be. Conversely, if the percentage in a fund's largest sector is low, it implies a lack of concentration and, therefore, relatively high diversification.

For example, since membership in the "perfect 10s" of sector diversification requires portfolio equity representation of all 10 sectors, if the largest sector is 10%, then all the other sectors would also be 10%.

So by the measure of the lowest percentage representation of a fund's biggest sector, the Manning & Napier Pro-Blend Moderate Term (EXBAX) fund appears to be the most widely diversified, as measured by sector representation.

But even if a fund's largest sector holding is much more than 10%, there is still room for variance among its remaining sectors. A more precise measure of the "levelness" of fund's dispersion would be the standard deviation of the percentages of its sector totals.

A low standard deviation means the percentages of the fund's sector holdings are close together, while a high number means that they are more spread out and that a degree of sector concentration exists. So we computed the standard deviations in the percentage holdings of sectors for the funds, with the numbers appearing in the right-most column of the table.

And so by the standard-deviation test of sector holdings, the sector diversification champion is again the Manning & Napier Pro-Blend Moderate Term fund, with a standard deviation of sector holdings of only 3.68 percentage points.

In the standard deviation derby, the fund edged out its sibling Manning & Napier Pro-Blend Maximum Term Fund, which clocked a standard deviation of 3.75 percentage points. The two Manning & Napier funds were the only ones from the 'Perfect 10' group with standard deviations of less than 4.0 percentage points.

Sector Diversification Champ Manning & Napier Pro-Blend Moderate Term
Sector	%
Basic Industries	3.35
Cap. Goods & Tech.	11.36
Consumer Cyclicals	13.65
Consumer Non-Cyclicals	9.97
Energy	12.60
Finance	10.83
Miscellaneous	10.34
Non - US	14.38
Transportation	9.50
Utilities	4.02
TOTAL RETURN (as of 10/31/2006)
3 Months	7.45%
Year to Data	11.33%
1 Year	12.88%
3 Years (annualized)	10.85%
5 Years (annualized)	8.05%
10 Years (annualized)	8.30%
Total Net Assets	$282.4 Mil.
PORTFOLIO MIX
Stocks	56%
Bonds	43%
Other	1%

Besides capturing first place in diversification of its equity holdings, the Manning & Napier Pro-Blend Moderate Term Fund, as an asset-allocation fund, is further diversified in that a significant portion of its holdings are in fixed-income vehicles. In other words, it is diversified in types of investments as well as in the diversification of its equity sectors.

And what about the portfolio management of the sector diversity champ? It's a team, meaning diversification exists even in that aspect of the fund as well.