Selective Investing within a Mutual Fund... is it possile?

Question

I have recently purchased an index mutual fund (S&P 500). Everytime I buy shares I buy mini-shares in each of the 500 underlying companies. Is there an investment vehical out there that is similar to mutual funds but allows customization of assett allocation within the fund... for example, I realize for the mutual fund to be it has to have a set of stocks. That's fine, now lest say I don't agree with buying stocks from 3 of the 500 I have on my list... I would like to change my assett allocation to such so that zero dollars go to the 3 and the remaining is spread across the rest. I am not sure if ETFs would do this or not... so far I am unaware of how to do this without simply just buying stocks (but then the broker fees will crush me).

Answer 1

I don't know of any mutual funds or index funds that will let you do this. You buy shares in the fund, which is the composite pool of all the underlying companies. It's as if they pour all the shares into a pie and you take a slice of the pie -- you can't pick out the mushrooms and carrots and only eat the chicken and peas. :-)

What you're describing is more like a traditional mutual fund rather than an index fund, in a way. In an index fund like the S&P 500, you buy shares in a fund that holds positions in the top 500 companies in Standard & Poor's list. You buy all 500, and that's that -- you have to eat the mushrooms and the carrots along with the chicken and peas.

In a traditional mutual fund, you buy shares in a fund that holds positions in companies that the fund manager believes have growth potential consistent with the fund's stated goals. For example, the fund manager of Fidelity Diversivied International (FDIVX) has chosen to invest in companies that meet his criteria for this fund, as outlined on this page:

http://finance.yahoo.com/q/hl?s=FDIVX

In essence, the fund manager has put together a pie that ONLY has what he likes in it. If it's mostly chicken and peas, with only a little bit of celery, you may find it more to your liking. So your task is to review existing mutual funds and pick those that have the fewest carrots and mushrooms. In the case of FDIVX (and in the spirit of disclosure, I do own a fair bit of FDIVX in my 401(k) package), the fund manager has basically doubled the S&P for the past three years, so I'm more than happy to eat a carrot or two given all the chicken he's providing me for my retirement.

Morningstar (http://www.morningstar.com) is the best-known source for rating mutual funds; as you research funds on the Web, look for the Morningstar rating to give you some idea of the fund's desirability. They look not only at the market segment, historical performance and fund manager's experience, they also factor in the total cost of ownership as part of their rating system.

And the Yahoo! Finance pages provide an insight into the composition of mutual funds, as indicated in the link I include above. So if you don't feel up to making your own pie, there's at least a fair selection of tools that will let you find one that has the most of the ingredients you like and the fewest you don't.

Answer 2

Not exactly, No. There are subsets of the indexes that are traded that might possibily be of interest to you. For example there is the S&P 500 value index IVE and the S&P 500 growth index IVW.

Heck there are litterly hundreds of index funds to choose from.

My main complaint with the index funds is that they are all capitalization weighted. That really means the top 20 holdings account for 50% of the total value and performance of the fund. For your purpose, if the stocks you do not like are not in the top 20, they are not going to matter anyway. That is not so much of a problem with the small and mid cap indexes as with the large cap indexes.

Rydex does have some equal weight index funds. They are the exception rather than the rule. Over 3 years the equal wt index has outperformed the capitalization wt index by 2.6%.

Answer 3

no not with mutual funds. The reason being is that the idea behind a mutual fund is that you dont have to make those decisions instead they are done by a fund manager who decides what is the best allocation. However instead of investing in a index fund you can invest in more specific funds that invest in a very narrow target or industry. Also if you really want to take control then your going to have to end up starting your own portfolio of stocks.

Answer 4

You will have a fund manager to decide on the asset class allocation. And you have no right to influence on the fund manager on how to allocate the mutual fund. The only way for your own selective stocks is to buy on your own portfolio. Yes you do need to pay for broker commision however you also pay for management fees for mutual fund. Well the choice is yours. The choice of today leads to the result of tommorrow. Good day.

Answer 5

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Answer 6

No.