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The Big Picture in US Equity Mutual Funds: November Rundown as of October

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US equity mutual funds

In this series, we’ve reviewed nine US equity mutual funds in terms of their sectoral changes over the past year (as of October 30, 2015). We also looked at the reasons driving these funds’ performances. But how does the overall portfolio position of these funds look? We’ve used the latest available complete portfolios with us to prepare the graph below.

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Portfolio composition

The graph above provides you a bird’s eye view of what you’re in for if you’re investing in any of these nine US equity mutual funds.

The information technology sector is the top sectoral choice for all the funds. The exposures range from 20% (SHRAX) to 37% (FDGRX) (HCAIX), but in all cases, the sector represents the largest holding. The choice on the second-highest weighted sector is between consumer discretionary and healthcare. Some funds have been increasing their exposures to consumer discretionary stocks due to the robust labor market and the fall in gasoline prices, which has left more money in the pockets of consumers. However, a few funds are still being defensive by betting on the healthcare sector.

Further component breakdowns

Consumer staples is generally out of favor, with healthcare winning the battle of defensive sectors over staples. Managers of these nine funds also do not have any interest in utilities. Only one fund (VIGRX) has close to 10% exposure to financials as it’s a passive fund, with others generally preferring other sectors. There’s a mixed take on industrials. These funds’ exposures to the industrials sector ranges from 2% (HCAIX) to 16% (VPMCX).

The oldest among these nine funds has been around since 1967 (AMCPX) while the youngest (HCAIX) is celebrating its thirteenth birthday. As far as total portfolio holdings are concerned, FDGRX is invested across 410 holdings while HCAIX is spread out across just 63.

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Observations

The US may be on the verge of a rate hike. Except one, none of the funds have provided their complete portfolio holdings as of the end of October. Once available, they’ll give an idea regarding the expectation of the rate hike by managers of these funds. Financials (BAC) (PNC) (USB) can expect some gains initially, but medium-to-long-term gains are questionable. Also, if the economy is strong in the eyes of monetary policymakers and the economy is able to take a rate hike—if any—then funds with higher exposures to the consumer discretionary sector will likely benefit.

A slowdown in the global economy does not bode well for industrials, although a pickup in domestic consumption and business investments will likely help to some degree. A rebound in energy prices would likely help those funds that remain invested in the sector (AMCPX) (VIGRX). But if the US economy remains strong and energy prices pick up, defensive bets can be expected to go off the table.

In any case, investors need to keep a close watch on signs that indicate a “liftoff” in December and should be ready to rebalance their equity mutual funds accordingly.

For more analysis on mutual funds, please visit Market Realist’s mutual funds page.

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