What Are Mutual Fund Holdings?
Definition & Examples of Mutual Fund Holdings
Mutual fund holdings are the various stocks, bonds, and other securities held within a fund. When you buy shares in a mutual fund, your shares are allocated proportionally to the various securities held by the fund.
Before making important purchases such as a car or a house, you take a look inside. Smart investors do the same with mutual funds. When researching and analyzing mutual funds, be sure you know what you're buying.
What Are Mutual Fund Holdings?
A mutual fund is a company that uses money from investors to purchase securities in hopes of gaining a return on those investments. A mutual fund's holdings represent the securities (usually stocks or bonds) held in the fund. All of the underlying holdings combine to form a single portfolio.
Imagine a bucket filled with rocks. The bucket is the mutual fund and each rock is a single stock or bond holding. The sum of all rocks (stocks or bonds) equals the total number of holdings.
When you invest in a mutual fund, you are investing in that company, which is then free to use your money to purchase the securities that make up its portfolio.
How Mutual Fund Holdings Work
Mutual fund managers decide what holdings to add to the total portfolio based on the objectives of the fund. The total holdings of two funds can vary significantly if, for example, one is an S&P 500 index and the other is a small-cap fund. These are designed for very different levels of risk and reward.
Generally, the U.S. Securities and Exchange Commission (SEC) requires mutual funds to issue reports twice a year. Included in those reports is a list of the current holdings so shareholders know how their money is being invested.
How to Determine the Ideal Total Number of Holdings
In general, mutual funds have an ideal range for the total number of holdings, and this range depends upon the category or type of fund. For example, index funds and some bond funds are expected to have a large number of holdings, often in the hundreds or even thousands of stocks or bonds. For most other funds, there are disadvantages to having too few or too many holdings.
Typically, if a fund only has 20 or 30 holdings, volatility and risk can be significantly higher because each holding has a proportionally larger impact on the performance of the mutual fund. Conversely, if a fund has 400 or 500 holdings, it is so large that its performance is likely to be similar to an index, such as the S&P 500. In this case, an investor may as well just buy one of the best S&P 500 index funds rather than hold a large-cap stock fund with hundreds of holdings.
The fund with very little holdings is like the small boat at sea that can move quickly but is also vulnerable to the occasional large waves. However, the fund with too many holdings is so big it may not be harmed as much by shifting waters but it can't move away from a glacier that can rip its hull and sink like the Titanic.
Find the Right Fund for Your Portfolio
A good rule of thumb is to look for a fund with at least 50 holdings but less than 200. This may assure the "just right" size that is not too small or too large. Remember the apples-to-apples rule and look at the averages for a given category of mutual fund. If the fund you are analyzing is much lower or higher in the total number of holdings than its respective category average, you may want to dig deeper to see if this fund is good for you.
See if 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 own portfolio.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
- Mutual fund holdings are the individual securities (stocks, bonds, etc.) in which the fund has invested.
- Taken together, all holdings make up the fund's portfolio.
- The right size and mix of holdings will vary depending on the fund type and investor goals.
U.S. Securities and Exchange Commission. "Information Available to Investment Company Shareholders." Accessed Aug. 5, 2020.