A breakdown of the fund's, subaccount's or separate account's portfolio holdings into general investment classes. Composition is broken down into Long, Short and Net values of the following classes: Cash, U.S Stocks, Non-U.S Stocks, Bonds, and Other.
How do I interpret the bar chart?
Origin
The composition is obtained from fund portfolios.
Benefits
Composition breakdown allows investors to glean information about the portfolio’s investment strategy. A portfolio with a large percentage of its assets in cash, for example, might indicate a defensive position, while a heavy bond exposure in a balanced fund may reveal a solid income orientation. Investors should note that negative percentages of cash indicate that the portfolio is leveraged, i.e.; has borrowed against its own assets to buy more securities.
In October 2007, Morningstar began incorporating short positions into detailed portfolio statistics for current and historical portfolios. These statistics summarize what the managers are buying and how they are positioning the portfolio. When short positions are captured, the portfolio statistics provide a more robust description of the fund's exposure to risk.
In knowing a fund’s composition, an investor can be sure that he or she is getting the type of fund they’re looking for. If you are looking for an aggressive growth fund, for example, the fund’s composition shouldn't reveal a 25% bond position.
For The Pros
A cash position can act as a good indicator of how a fund manager feels about the market at present. It proves, however, an even more accurate indicator of how different fund groups feel about the market. It’s an easy task to assess a fund group’s aggregate cash position in equities by simply exporting data into a spreadsheet. But it’s imperative that the average weighted cash position be determined. To do so, begin by exporting all the net asset amounts and cash position amounts for the specific fund group. Multiply each cell in the assets column by $1 million. Next, divide each cell in the cash position column by 100. Multiply the two columns together. The resulting column will contain each fund’s total cash position in dollars. This new column may be labeled "total cash." Add together each total cash column cell, and divide the resulting figure by the total sum of the net assets column. The resulting percentage tells you the actual percentage of all the fund group’s assets sitting in cash. The cash positions can vary widely among fund families.