Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Global100
Posts: 52
Joined: Wed Dec 27, 2017 8:46 pm

Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by Global100 » Fri Dec 07, 2018 11:50 am

If it wanted, could Vanguard (or other brokerage) have the ability to offer a mutual fund consisting of only ONE single stock holding, like Apple AAPL, and nothing else besides some cash holdings for fund managers' buying/selling/expenses etc?

The 'AAPL mutual fund' investors:
-would pay an expense ratio and the returns wouldn't match AAPL stock returns.
-could buy just $50 worth of AAPL (currently trading over $150 per share) and receive partial shares.
-not have to deal with bid-ask spreads
-receive the 4pm closing NAV for buying and selling

Does a brokerage have the ability to offer such a mutual fund if it desired? Hypothetical question.
Last edited by Global100 on Fri Dec 07, 2018 12:08 pm, edited 1 time in total.

User avatar
JoMoney
Posts: 6271
Joined: Tue Jul 23, 2013 5:31 am

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by JoMoney » Fri Dec 07, 2018 12:07 pm

Probably. It would be considered "non-diversified", and I would question who would want to own it, but it's potentially something that could happen... buy why?
My workplace retirement plan offers a company stock fund that essentially is just buying the company stock, trades like a mutual fund (but doesn't hold cash, or at least not much).
I'm not sure if such funds are only available inside retirement plans, I believe I remember seeing something similar offered by some companies as a "Direct Purchase Plan" for people who wanted to buy stock directly from a company as opposed to going through a broker.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Global100
Posts: 52
Joined: Wed Dec 27, 2017 8:46 pm

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by Global100 » Fri Dec 07, 2018 12:16 pm

JoMoney wrote:
Fri Dec 07, 2018 12:07 pm
It would be considered "non-diversified", and I would question who would want to own it, but it's potentially something that could happen... buy why?
Good consideration - Is a mutual fund in the US allowed to be extremely undiversified with its asset(s) if the investors desire it? Or could it be prevented from the market place due to regulations if a cetain percentage of the mutual fund is too concentrated in one individual holding?

If the investor desires the single stock concentration, then maybe a safeguard in place is that investor needs to make active purchases in that individual stock rather than through a mutual fund.
Last edited by Global100 on Fri Dec 07, 2018 12:27 pm, edited 3 times in total.

averagedude
Posts: 349
Joined: Sun May 13, 2018 3:41 pm

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by averagedude » Fri Dec 07, 2018 12:21 pm

Could be wrong, but i believe they have to register with the SEC, and this agency would deny them to have a such fund.

User avatar
JoMoney
Posts: 6271
Joined: Tue Jul 23, 2013 5:31 am

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by JoMoney » Fri Dec 07, 2018 12:25 pm

There are prohibitions on certain kinds of things being offered as mutual funds, and require investors to be "qualified" like Hedge Funds... I'm not sure about the particulars though. I know there are mutual funds that are considered "focus funds" that have very few holdings (like 15-30 individual stocks) and sometimes concentrate 30-40% in a single stock.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

User avatar
vineviz
Posts: 2292
Joined: Tue May 15, 2018 1:55 pm

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by vineviz » Fri Dec 07, 2018 12:38 pm

JoMoney wrote:
Fri Dec 07, 2018 12:07 pm
Probably. It would be considered "non-diversified", and I would question who would want to own it, but it's potentially something that could happen... buy why?
I'm pretty sure that Berkshire Hathaway only introduced their (cheaper) Class B shares because one or more mutual funds had filed registration to open new funds dedicated entirely to holding Berkshire Class A shares (with had a share price too high for many investors to afford even a single share).

EDIT: Even today, Blue Chip Investor Fund (BCIFX) has over 30% of its assets in Berkshire stock.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

iamblessed
Posts: 53
Joined: Sat Jun 09, 2018 11:52 am

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by iamblessed » Fri Dec 07, 2018 12:40 pm

I have not seen a fund with more than 5% in one stock. I don't think they can go over that.

samirol
Posts: 1
Joined: Mon Feb 19, 2018 8:35 pm

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by samirol » Fri Dec 07, 2018 12:45 pm

M1 allows you to create custom portfolios and you can do it with just one stock/etf, so $50 would get you a fractional share worth $50

User avatar
vineviz
Posts: 2292
Joined: Tue May 15, 2018 1:55 pm

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by vineviz » Fri Dec 07, 2018 12:53 pm

iamblessed wrote:
Fri Dec 07, 2018 12:40 pm
I have not seen a fund with more than 5% in one stock. I don't think they can go over that.
Oh, they definitely can and do.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
JoMoney
Posts: 6271
Joined: Tue Jul 23, 2013 5:31 am

Re: Brokerage able to create a mutual fund offering with only one single stock (and nothing else besides cash holdings)?

Post by JoMoney » Fri Dec 07, 2018 12:56 pm

iamblessed wrote:
Fri Dec 07, 2018 12:40 pm
I have not seen a fund with more than 5% in one stock. I don't think they can go over that.
They can, it just potentially makes the fund "non diversified" and that needs to be disclosed to investors. There are many sector funds, single country funds, and niche index funds that have well over 5% in their top holding.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Post Reply