Finding the best mutual funds is an increasingly difficult task in a world with so many to choose from.
You Cannot Trust Mutual Fund Labels
There are at least 940 different Large Cap Blend mutual funds and at least 5896 mutual funds across all styles. Do investors need that many choices? How different can the mutual funds be?
Those 940 Large Cap Blend mutual funds are very different. With anywhere from 14 to 1022 holdings, many of these Large Cap Blend mutual funds have very different portfolios, creating different investment implications.
The same is true for the mutual funds in any other style, as each offers a very different mix of good and bad stocks. Some styles have lots of good stocks and offer quality funds. The opposite is true for some styles, while others lie in between these extremes with a fair mix of good and bad stocks. For example, the Large Cap Blend style, per my 2Q Style Rankings Report ranks first out of 10 styles when it comes to providing investors with quality mutual funds. Small Cap Value ranks last. Details on the Best & Worst Mutual Funds in each style 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 style should not all be that different. I think the large number of Large Cap Blend (or any other) style 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 1022 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.
