Mutual funds that focus on a select sector or small number of stocks are outperforming more broadly based portfolios, The Wall Street Journal reports. These funds rely on in-depth research to invest in only a couple dozen of stocks, rather than the average 172. Thus, they are riskier—but have the potential for outsized returns.
“It’s very hard to find 100 great investment opportunities, but there can often be 20,” said Charlie Bobrinskoy, co-manager of the Ariel Focus Fund, a portfolio of only 23 stocks. “Why put your month into your 50th or 100th best idea when you can put it into your sixth or 19th best? It’s better to keep one basket and really watch that basket.”