The first data checkpoint in Table 1 is asset allocation—the percentage of the total fund's market value that is invested in each broad asset category—cash, stocks, or bonds. The best sites will break down stocks and bonds into domestic and foreign parts. This data checkpoint is important because if you "hire" a mutual fund to manage your assets, you expect them to remain invested in a particular way. For example, if you are invested in a stock fund, a large cash position held by the fund, 5% or more, is a sign for concern. Large cash holdings might signal market timing or a large influx of cash that has yet to be digested—both problems for investors who are expecting their stock fund to be invested in stocks and perform well.
Top holdings lists the specific stocks or bonds held in the portfolio, along with, at a minimum, the percentage of net assets each holding represents. Some websites list the top five holdings, others list up to the top 25. Other statistics that may accompany these lists are the year-to-date returns for each holding, and whether the position is new, increased, or decreased since the last reporting period. This data checkpoint should be used to see whether the fund is investing in what you think it is, to make sure you are really diversified and invested in a way that is appropriate to your goals.
Relying only on a fund name to discern what's in the fund's portfolio can be misleading. Often investors assume that the different funds they are invested in are managed differently, when in fact a look at the holdings would indicate that they hold the same or similar investments. You can use this section to help determine, for instance, whether your fund is holding small stocks, large stocks, growth stocks, value stocks, or some mix. A few sites offer summary value/growth and capitalization information that is an even quicker read.
The sector allocation breakdowns answer the question of how diversified a fund is by industry. This data checkpoint can help you determine if the fund you're considering is really a hidden sector fund, with stocks concentrated in only one or a few closely related industries, situations commonly found in the aggressive growth fund category. Sector funds and hidden sector funds are riskier, less diversified, and potentially more volatile. Sector holdings are reported as a percentage of fund value. You can also check the top holdings lists for sector information—some top holdings lists will report the sector of a particular stock or bond.
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