Do Concentrated Fund Portfolios Perform Better?

Investors are taught the importance of diversification, but does ignoring this advice and opting for a concentrated portfolio yield better results? 

Annalisa Esposito 20 January, 2020 | 9:20AM

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The importance of diversification is one of the first lessons that any investor learns: spread your money across lots of different stocks, sectors and regions to reduce risk. But a number of fund managers fly in the face of that advice and are thriving as a result. Indeed, Warren Buffett once famously said “diversification is a protection against ignorance” and Morningstar Direct data shows that the most concentrated fund portfolios are often among the top performers of their group.

We have looked at funds with 30 or fewer holdings in their portfolio to determine how they have performed against their peers. There are 10 actively managed equity funds with 30 holdings or less, and seven of these have consistently beaten their Morningstar category (we do not have five year data for one of the 10).  

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About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk

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