A recent article from MarketWatch describes how many mutual funds were recently burned by large stakes in the Apple Inc. stock and by exposure to gold. The article correctly states that

“The issue for investors is that they buy funds based on past performance, without regard for how those numbers were achieved. One way funds top the performance charts is by taking additional risks, concentrating a portfolio or going hard into the hot asset; investors enter when the fund is on a hot streak, and then are disappointed when the market turns and the strategy falters.”

The article proposes the following solution:

“In the end, investors should look at their quarterly statements and see the reasons behind their disappointment. If the cause can be isolated as too much exposure to any stock or asset class, that’s a sign that it’s time to look for better balance from the funds in a portfolio.”

Unfortunately, there are multiple problems with trying to determine a fund’s exposure from its statements:

  1. Filings are infrequent (quarterly).
  2. Statements contain point-in-time snapshots of the fund’s portfolio, so an investor really has no idea how the portfolio evolved over the course of the quarter.
  3. The snapshot is subject to manipulation, such as “window dressing.”
  4. The snapshot is available with a substantial lag of several weeks from the end of the quarter; by the time the investor reviews the statement, the fund’s portfolio is likely completely different.

Alpholio™ solves this problem by providing an up-to-date analysis of the fund, which clearly shows all equivalent positions in exchange-traded products (ETPs). Our service gives the investor an ability to see exactly the risks the fund manager is taking and the concentrated bets he/she is making well in advance of the quarterly statement. This will be clearly demonstrated in an upcoming post on exposure of one well-known mutual fund to gold as a major factor.

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