Finding the best mutual funds is an increasingly difficult task in a world with so many from which to choose.
You Cannot Trust Mutual Fund Labels
There are at least 231 different Financials mutual funds and at least 630 mutual funds across all sectors. Do investors need that many choices? How different can the mutual funds be?
Those 231 Financials mutual funds are very different. With anywhere from 21 to 539 holdings, many of these Financials mutual funds have drastically different portfolios, creating drastically different investment implications.
The same is true for the mutual funds in any other sector as each offers a very different mix of good and bad stocks. Some sectors have lots of good stocks and offer quality funds. The opposite is true for some sectors, while others lie in between these extremes with a fair mix of good and bad stocks. For example, the Consumer Discretionary sector, per my 3Q Sector Rankings Report ranks fourth out of 12 sectors when it comes to providing investors with quality mutual funds. Consumer Staples ranks first. Utilities ranks last. Details on the Best & Worst mutual funds in each sector are here.
The bottom line is: mutual fund labels do not tell you the kind of stocks you are getting in any given mutual fund.
Paralysis By Analysis
I firmly believe mutual funds for a given sector should not all be that different. I think the large number of Financials (or any other) sector of mutual funds hurts investors more than it helps because too many options can be paralyzing. It is simply not possible for the majority of investors to properly assess the quality of so many mutual funds. Analyzing mutual funds, done with the proper diligence, is far more difficult than analyzing stocks because it means analyzing all the stocks within each mutual fund. As stated above, that can be as many as 539 stocks, and sometimes even more, for one mutual fund.
Any investor worth his salt recognizes that analyzing the holdings of a mutual fund is critical to finding the best mutual fund.
