Definition of Mutual Fund Holdings

Millions of people invest; they either buy individual issues or mutual funds. If they buy mutual funds, they are interested in diversifying their holdings by owning shares that represent ownership of many different entities--and they trust the mutual fund manager to deliver. From time to time, the investment company that sponsors a mutual fund will publish the holdings of that fund, both for investors to see and as a way to promote the funds to future investors.

Published Quarterly, At Best

If you own mutual funds, you will be lucky to receive a list of its holdings about every 90 days. In most cases, mutual funds publish such a list only every six months, so they comply with laws governing the securities industry. But, because the lists are published so infrequently, they leave investors and would-be investors in the dark as to the current thinking of the managers of the fund.

Top-10 Holdings, Only

In general, mutual funds will publish a list of the major holdings, including the amount, the value and the percentage of the total fund invested in that issue. Unfortunately, such a list is only published about once each month, and it can easily be 30-days old.

Why So Infrequently?

For one, if the mutual fund companies were to publish the list of holdings more frequently, competing fund managers would have a better sense of the fund manager's strategy and buy the same issues, thus bidding up the price. Also, many mutual funds companies believe that by not publishing the fund's holdings, they give their managers more latitude to deliver on the promise of performance.

Downside?

Since you will not frequently be told what your fund holds, you could be in for a big surprise. For example, the money manager may decide to lock in profits that would be passed onto you; you would be obliged to pay income or capital gains tax on them. Then there is the case of the fund whose manager decided to cash out of tech stocks just before the gigantic rally in 1998. Then the same manager bought the shares back just in time for the market's collapse of tech stocks two years later. Also, a less frequent report could lead fund managers to so-called "window-dress" the portfolio before a report is to be issued. Or a fund manager sets out to increase his income by taking profits earlier than he normally would.

Future

For now, the mutual funds industry is violently opposed to increasing the flow of information on its activities. But, with people having much more information available online to make investment choices, you will begin seeing more frequent reports of a mutual fund's holdings, before long.