Definition and Examples of Mutual Fund Holdings
A mutual fund is a an investment vehicle that pools money from investors to purchase securities. A mutual fund's holdings represent the securities held in the fund. All of the underlying holdings combine to form a single fund.
For example, the Vanguard 500 Index Fund Admiral Shares (VFIAX) is a mutual fund that holds stocks that mirror the S&P 500 index. The S&P 500 generally lists 505 stocks, but VFIAX consists of 507 stocks representing many different sectors. The stocks held by the fund are its holdings.
When you invest in a mutual fund, it is free to use your money to purchase the securities that make up its portfolio.
How Mutual Fund Holdings Work
The fund's management creates an investing goal and strategy and then purchases stocks that best meet the overall investment plan for the fund.
Because the stocks held by a mutual fund can be very expensive, the holdings are fractionalized to make them more affordable to individual and retail investors. Investors purchase these fractionalized holdings, called "shares," and trust the management to invest their money according to the fund's goals.
There are many different ways that mutual funds can allocate their holdings. For example, VFIAX tracks the S&P 500, an index of large-cap companies hand-picked by Standard & Poor's—a business intelligence company. The S&P 500 is an index used to benchmark the overall stock market returns and performance.
VFIAX consists of diversified holdings that mimic the index, shown in the table below. A sector's portfolio allocation refers to the percentage of the portfolio that the sector's funds make up:
|Sector||Fund Portfolio Allocation|
Within the sector's allocation are the stocks of companies that operate in those sectors. Here are a few examples of the stocks in each sector that VFIAX holds:
- Communication Services: Alphabet, Meta Platforms, AT&T
- Consumer Discretionary: Amazon, Whirlpool, Nike
- Consumer Staples: Proctor and Gamble, Monster Beverges, Kroger
- Energy: Exxon, Chevron, Conoco
- Financials: Berkshire Hathaway, JP Morgan Chase, Bank of America
- Healthcare: United Health Group, Johnson & Johnson, Merck & Co.
- Industrials: United Parcel Service, Boeing, General Dynamics
- Information Technology: Apple, Microsoft, Nvidia
- Materials: Sherwin-Williams, DuPont, Amcor
- Real Estate: American Tower, Prologis, Weyerhauser
- Utilities: Duke Energy, Southern Co., NextEra
What It Means for Individual Investors
Mutual fund holdings are important because they are what dictate the performance of the fund and whether it matches your goals and interests. There are other factors that are important for investors, as well.
One of the most significant advantages of mutual funds is the number of holdings. For example, Amazon's stock price reached as high as $3,681 and as low as $2,785 from January 2021 to March 2022. Even at its lowest price for this period, you'd still have paid quite a bit. To hold one share of each company that a mutual fund holds stocks in, you'd likely need hundreds of thousands of dollars.
You'll pay fees for mutual funds, because they are managed for you, but overall the costs can be low if you choose a passively managed fund. These funds generally have lower fees than actively managed funds, which need more care by fund managers.
Actively managed funds tend to change holdings more than passively managed funds, making them more expensive to manage.
Mutual funds give you a broader exposure to markets, sectors, and stocks that you may not be able to gain access to if you were to try and mimic an index yourself—again, because it is too costly. It would also take most of your time to manage the portfolio to ensure that it performs at the level you want it to.
Alongside exposure and lower costs is diversity, one of the most common recommendations for reducing investing risk. Because you gain exposure to several sectors and markets, the holdings in a mutual fund work to reduce market risk and price volatility by countering stocks with fluctuating prices with more stable stocks.
This diversity doesn't eliminate risk, but it helps preserve capital in case economic and market circumstances cause drastic fluctuations in prices. Not all sectors respond the same way to factors that influence prices, so diversity across sectors using different market capitalization balances your portfolio.
When you're comparing mutual funds, it's essential that you look over the holdings. You could be trying to choose between well-performing funds from different brokers, but you might decide to invest in two mutual funds with identical holdings if you're not careful.
Investing in multiple funds with the same holdings also increases your expenses.
Mutual fund holdings can be the same across different funds, but if you invest in two mutual funds that mimic the same index or have the same holdings, you increase the risk you're taking on. If the stock market begins to decline, both of your funds will lose value at the same rate. That could act to double your losses—but again, if the stock market and indexes begin to rise, you could double your returns with two similar mutual funds.
See whether the fund you are analyzing fits with the other funds in your portfolio. A fund with only 20 holdings can be risky on its own, but it may work as part of a diversified mix of mutual funds within your portfolio.
- Mutual fund holdings are the individual securities (e.g., stocks and bonds) in which the fund has invested.
- The right size and mix of holdings will vary, depending on the fund type and your goals.
- To match your goals and risk-tolerance levels, choose mutual funds whose holdings complement each other.