Recent Fund Performance and Portfolio Holdings

Recent performance

The portfolio manager's part of the mutual fund shareholder's report is generally followed by a discussion of recent performance. The report should compare your fund's performance to both a benchmark, such as the S&P 500 Index (the standard benchmark for large-company stock funds) or the Russell 2000 Index (for small-company funds), as well as to the average performance of funds with similar investment strategies.

When evaluating your fund's performance, be sure that the benchmark the fund chooses is appropriate for its style. For example, a technology fund shouldn't compare itself to the S&P 500 and nothing else; it should measure its performance against a technology benchmark.

In addition to benchmark comparison, the report should give you an idea of how the fund has performed over various time frames, both short and long term.

Portfolio holdings

Funds often list the portfolio's largest holdings and provide some information about what these companies do or why the manager owns them. Some reports will also indicate, via a pie chart or table, the sectors in which the fund is heavily invested.

This general overview is complemented by a complete list of the fund's portfolio holdings including stocks, bonds, and cash as of the date of the report. These holdings are usually segmented by industry. (Foreign funds may segment by country.) While you might not recognize all the names of the stocks in the portfolio, this listing is useful if you're wondering whether the fund is holding many names in one industry or making a few large selected bets.

Don't forget the footnotes

Don't forget to read the fine print. In the footnotes, you can find out if fund managers are practicing such strategies as shorting stocks or hedging exposure to foreign currency, which can significantly affect the fund's performance.

Footnotes can also provide insights into particular portfolio holdings. For instance, they may designate certain holdings as illiquid securities and 144a securities, which means they're more difficult to trade than plain common stocks.