Broker Check

What's Inside Your Portfolio?

June 16, 2021

Many investors own one or many mutual funds or ETFs, but don’t really understand what the underlying holdings consist of.  You may scratch your head in certain years wondering why your portfolio underperformed the major indexes like the S&P 500 or the Dow Jones Industrial Average, but just like your portfolio it is important to know what the composition is of the benchmark you are using.  Take the S&P 500, for example, which is comprised of the 500 largest companies in America.  Although it is commonly talked about, is it a true representation of the overall market?  Not really.  The S&P 500 is a market cap weighted index where the 5 largest companies make up over 20%.  The “Dow” is even less representative of the overall market with only thirty stocks.

Early on in my career I learned that even if you own good companies or funds but are in the wrong sectors for that particular year, you will have a hard time capturing the performance of the market.  Although finding companies with strong fundamentals is imperative on the individual stock level, it is even more important to be in the right sectors.  Just take the last 18 months for example.  The growth stocks that had an incredible year in 2020 are drastically underperforming their value counterparts in 2021.  That is why it is so important to have a diversified portfolio, covering various sectors. My personal approach as a portfolio manager is to start at the index weights then take an overweight or underweight position on the various sectors.  Although there can be surprises, certain sectors tend to perform better during different stages of the business cycle.  If you would like help in determining your asset allocation, we are more than happy to assist.

The views expressed are not necessarily the opinion of LPL Financial. Due to volatility within the markets mentioned, opinions are subject to change without notice. All investing involves risk including the potential loss of principal. No investment strategy including buy and hold, and diversification can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary and therefore should only be relied upon when coordinated with individual professional advice. This information is not to be taken as Investment advice or guarantee of future results.  

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