An experiment with riding a mutual fund manager

[eastbay]

The reasons mutual funds are constrained and often put in disappointing performances have been discussed here a few times. One of the bigger reasons is that if they are any good they usually they have too much money to manage, and can't come up with enough good ideas to employ it all, and end up with a lot of so-so holdings which drags down the overall performance.

So I'm playing a little game with a fund manager I respect and believe is a consistent outperformer (who will remain nameless for now). I'm taking five of his top weightings in a successful fund he runs and putting a sum of money just into those five, and removing the 150-200 other holdings in the fund. In other words I'm taking his top weightings (near 2%) and pumping them up to 20% each. I'm choosing the five based on a few criteria: his weightings (higher is better), some semblance of diversification among the five, and a few morsels of my own research.

I started this about a month ago and have had a lucky streak and am up 10% so far. Yes, I know I have taken on significantly more risk than owning the whole fund.

Just a simple little lazy person's idea I thought I'd throw out there. Ask me how it worked in a year or so.

eastbay