Stock-Picking Takes Concentration

If recent market volatility makes you yearn for more steady returns, it may be time to turn over some of your mutual fund portfolio to an active manager. If you can handle the bigger price swings, higher costs and higher risk, there may be a payoff for your investments.

Financial advisers aren't abandoning their mantra that a diverse, balanced portfolio, aligned with a stated set of investment goals, is the best foundation for investment success. But this may be a time for smart stock-pickers to prosper. Funds whose managers pick their stocks selectively, rotating through different sectors and trying to time the market, charge more and can incur higher losses, but some of those funds, particularly those that hold stocks in fewer companies, are worth a look.

"With a sideways market, we noticed that actively managed funds trounced the indexes," says Jeff Tjornehoj, an analyst at mutual fund tracker Lipper. ...