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Focused Fund

A focused fund is an investment fund that concentrates its holdings in a small number of stocks, sectors, or themes, rather than diversifying widely across the market. This concentrated strategy aims to generate higher returns by taking larger positions in the fund manager’s best ideas. However, this approach also increases risk, as poor performance of a few holdings can significantly impact the fund’s overall performance. Focused funds appeal to investors who believe in active management and the potential for outsized returns.

Example

A focused fund holds only 20 stocks, primarily in the technology sector, betting on the high growth potential of the companies selected. This narrow focus can lead to substantial gains if the sector performs well.

Key points

• Invests in a limited number of stocks or sectors.

• Aims for higher returns through concentrated positions.

• Increases risk due to lower diversification.

Quick Answers to Curious Questions

Focused funds allow investors to capitalize on the fund manager’s best ideas, potentially achieving higher returns compared to more diversified funds.

Concentration risk is significant; poor performance of a few holdings can adversely affect the entire fund, leading to greater volatility.

They can complement a diversified portfolio by adding targeted exposure to specific sectors or themes, enhancing overall returns.