One of the first things you probably learned about investing was not to put all of your eggs in one basket.
Of course buying enough eggs and baskets to properly diversify your portfolio can be expensive. That's the whole reason mutual funds exist: So we little guys can benefit from the same type of diversification as the institutional investors.
It would stand to reason, then, that you could trust your mutual fund not to put all of its eggs in one basket.
But after TheStreet.com Ratings scoured its database for funds with large holdings in a single stock, we found that some fund managers are investing like Vegas high rollers.
Retail equity funds with minimum initial investment requirements of less than $50,000 were filtered to identify those with holdings of at least 20% of net assets in a single investment. Investments by "funds of funds" in other mutual funds were excluded, as investments in other funds enhance a portfolio's diversity.
TheStreet.com Ratings' fund database came up with nine open-end equity funds that meet these criteria. This is in very stark contrast to the majority of funds, which typically commit no more than 5% in any single stock.
It is evident from the table below that betting big has come back to haunt most of the high rollers. For example, the
ProFunds-Biotech Ultra Sector fund (BIPIX), placed a 20.8% bet on
and lost big. Amgen's stock is down more than 23% over the past 12 months, dragging down the Biotech fund 15.62% over the same time period.
Fidelity Select Construction and Housing (FSHOX) fund had a 21.8% bet on
, which has lost 11.37% over the past year. As a result, the fund managed a return of only 0.45% for the past 12 months.
However, one high-rolling fund manager scored on a big bet. The
ProFunds-Oil & Gas UltraSector fund (ENPIX) had a whopping 24% wager on
, and won big. The oil giant's stock has risen more than 26% over the past year, helping the fund grow 17.5% in that time.
Encouragingly, none of the funds on the list invested like an Amarillo Slim with big portfolio bets on speculative stocks. Instead, all but two of the nine tend to be specialized funds, each with a narrow focus that tends to limit its population of choices.
Another positive was that, despite the large holding of one stock, most of the biggest holdings tend to be stable industry leaders. In fact,
is the top holding of three of the big-bets funds. GE, being the most diversified of the giant U.S. corporations, arguably adds a degree of diversification to a mutual fund, even when the portfolio's position in the company amounts to more than 20%.
Of the nine funds on the list, three have grades of B, which equals a buy recommendation, and three have C-range grades that are the equivalent of a hold. The remaining three all have sell ratings, including two with the dubious honor of having E-minus grades -- the lowest grade available from TheStreet.com Ratings.
Richard Widows is a financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.