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Funds 403: Using Focused Funds

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1.
Which of the following should you expect when you invest in a focused fund?
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Occasional short-term volatility. While a focused fund may have an inexperienced manager or high expenses, investors should almost always expect some short-term volatility.
2.
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.
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True. That is their rationale for creating the portfolios, and some investors are attracted to that.
3.
Which is the biggest benefit of buying a focused fund from an established and reputable fund family?
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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.
What criteria determine whether a fund is "focused"?
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All of the above. A fund can be considered focused if it fits any of these criteria.
5.
In terms of risks and rewards, investing in a focused fund is similar to investing in _______.
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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.