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 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.
3.
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.
4.
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.
5.
A fund that holds only 5 stocks could be considered a focused fund.
True. As a rule, a focused fund holds fewer than 40 stocks.
