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You need to check your fund holdings more often


Investment manager Roger Nusbaum has an excellent post today reviewing what he did after reading this Bloomberg News article on Argentina’s shaky finances. Bond investors seem to think the country might default on its debt. Nusbaum immediately took a look through the holdings of funds he’d considered in the past that might own Argentine bonds. And, sure enough, he discovered that the Templeton Emerging Markets Income Fund (Symbol: TEI) had almost 10% of its assets in Argentina debt as of its most recent portfolio disclosure. He concludes:

From where I sit I would want to know what is under the hood of a fund like this if I owned it, especially with the actively managed funds in order to minimize the chance of getting blindsided. Notice I’m saying minimize as opposed to avoid. Every so often you are going to get blindsided by something but the extent to which knowing some details about what you own and paying attention to the news might spare you a little.

Obviously, it’s important to review a fund’s holdings when you buy it. Over-concentration in one sector or asset class or country can be a red flag, depending on the type of fund and what you’re seeking by investing in it. For example, see how all those supposedly safe dividend funds have done since the financial sector crack-up?

But the need to check a fund’s holdings is a kind of periodic and perpetual task that never ends. You have to keep up on it even after you make that initial purchase decision. Too many investors want to buy and hold forever. Fund managers are constantly making changes, sometimes radically altering the risks in their portfolios.

Minor update: Franklin Resources, manager of the fund, says exposure to Argentina is 9.8% of assets as of the end of February (Scroll to bottom and click on link for PDF listing).


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