WSJ: When ‘Focused’ Funds Falter

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Klaas BaksInvestors have kept a close eye on returns during these stormy economic times. Underperforming funds aren’t rare, but tumbling returns on “focused” funds can be more troubling.

According to a recent report in The Wall Street Journal, several funds saw a significant decrease in value in 2011. Those on the worst-performing mutual fund list of 2011 had a common them.

“Each manager’s funds owns fewer than 50 stocks or has more than half of it’s money tied up in its top 10 holdings,” writes the WSJ’s Joe Light.

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Klaas Baks, an assistant professor in the practice of finance and Executive Director of the Emory Center for Alternative Investments, told The Wall Street Journal focused managers can get better results.

“If you concentrate your assets, you must really believe in your idea,” says Baks. “You can see that in better returns.”

According to the report, Baks also suggests investing money in focused funds for the long term — at least 10 years.

“Baks’s research found that any outperformance was likely to appear only over long time periods,” writes Light.

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