Do Concentrated Fund Portfolios Perform Better?

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. 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. 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).