Holdings

What are assets

Assets are the contents of an investment portfolio held by a person or entity, such as a mutual fund or a pension fund. Portfolios can encompass a wide range of investment products, from stocks, bonds and option mutual funds, futures and exchange traded funds (ETFs), to relatively esoteric instruments such as private equity and hedge funds.

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DISTRIBUTION Assets

The number and types of holdings in a portfolio contribute to the degree of diversification. A mix of stocks in different sectors, bonds with different maturities and other investments would suggest a well-diversified portfolio, while holdings concentrated in a handful of stocks within the same sector indicate a portfolio with a very limited diversification.

Diversification and acquisition of holdings

The proportion of holdings in a portfolio has a significant impact on its overall return. The performance of larger stocks has a greater influence on the performance of the portfolio than smaller stocks or marginal stocks in the portfolio. Investors regularly scan the holdings of the best fund managers to overlay their transactions. These investors generally seek to replicate the trading activity of the best fund managers by buying stocks where the manager has initiated a long position or significantly added to an existing position and by selling positions where the manager has left a stake. This strategy may not always work for the average investor, given the considerable time lag between the time the fund manager or fund has affected transactions and the time when the fund’s holdings are released to the general public.

Example of funds

The holdings of famous and smaller fund managers are published quarterly through a dossier from the Securities and Exchange Commission (SEC) known as 13F. Investors have 45 days before the end of the quarter to declare their assets for the previous quarter. However, this requirement only applies to long equity positions, which means that other positions such as short positions, options and foreign positions are not disclosed. One of the most legendary investors of all time, Warren Buffett, held the following major holdings in his portfolio as of December 31, 2020: Wells Fargo Corp., Apple Inc., Bank of America Corp., Coca-Cola Co., and American Express Co.

Holding companies

Holding companies are a closely related concept. In some cases, investors can choose to hold their assets through a limited liability company (LLC). They can do this to reduce their personal exposure to risk, minimize their taxes, or pool their investments with other people, such as partners or family members. Typically, a holding company does not operate directly, but only serves as a vehicle of ownership for other companies or investments.

A very famous example of such a company is Berkshire Hathaway Inc., the Omaha, Nebraska company that Warren Buffett controls and manages. Berkshire Hathaway started as a textile manufacturing company, but for several decades it was only a holding company that Buffett used to acquire, hold and sell various investments in other companies. Berkshire Hathaway’s main titles include the Government Insurance Insurance Company (GEICO), Dairy Queen Inc. and the Coca-Cola Company.

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