Should You Buy What Mutual Funds Buy?


Mutual fund conviction buys

Every month, mutual funds disclose their portfolios and investors go to work on them to find investment ideas. But should they? Tracking their conviction buys – stocks that are new additions to their portfolios – tell a different story.

Median T+5, T+10 and T+20 returns were -0.13%, -0.93% and -1.3%

You were actually worse off following them if you were looking for a quick trade.

Does this mean fund managers miss the mark?

No. Their reason for buying a stock makes sense for the strategy and portfolio that they are running. Their time horizon extends beyond 20-days. Using their actions to guide your trading decisions is what misses the mark.

How is this data useful?

This is basically a negative result. The next time some fund manager is asked what he is buying on TV or you come across a media item that lists the most bought stocks, curb your instinct to go out and buy them.

If you really like what a fund manager is doing with his portfolio, it is cheaper to buy his fund rather than trying to do it yourself.

Mutual Fund Exposure of Stocks
Mutual Fund Portfolio Disclosures

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