Choose wisely. There is only one correct answer to each question.
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1.
In terms of risks and rewards, investing in a focused fund is similar to investing in _______.
A basket of individual stocks. Owning a focused fund is most similar to owning a bunch of individual companies. Index funds tend to be broadly diversified reflections of a major market index. Fixed-income funds invest in bonds.
2.
Which is the biggest benefit of buying a focused fund from an established and reputable fund family?
They will probably intervene if the fund underperforms over a long period of time. Established and well-respected fund families are most likely to step in if a fund is dramatically underperforming its peer group, at least partially to protect its good name.
3.
As a general rule, a "focused fund" would hold _______ stocks.
Fewer than 40. There is no precise number, but this is a general rule.
4.
Which focused fund should you be wary of?
A fund with a 2% expense ratio. A focused fund with expenses higher than 2% should be regarded with suspicion.
5.
Managers of focused funds defend their portfolios by saying that they can better generate returns with a handful of top-quality stocks than a large collection of stocks.
True. That is their rationale for creating the portfolios, and some investors are attracted to that.
