Number of Holdings

It's also important to know whether a fund holds 20 or 200 stocks. You'd expect a fund with fewer stocks to be more volatile than one with hundreds of names on hand. While that isn't always the case, it often is. Just as you need to be aware of funds that place a large portion of their assets in one or two sectors, you need to know if a fund places a large portion of assets in a small number of holdings.

To illustrate …

For example, ABC Midcap and XYZ Midcap are both mid-cap growth funds, yet the former generally owns less than 40 stocks while the latter stockpiles hundreds of names. ABC Midcap is taking on more risk—its performance is dependent on the success or failure of a much smaller number of stocks.