In this case, you would be better off with a cheaper index tracker. A mutual fund with several hundred companies may well have ‘diworsified’ away the skill of the manager, yet still charge a premium fee.
Indeed, it has been estimated that once a stock portfolio reaches 20-30 holdings, much of the ‘company-specific’ risk has been mitigated and there is little additional benefit gained from adding even more favourites.
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Jim Wood-Smith is head of research at Hawksmoor Investment Management
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