chris319 wrote: ↑Thu May 06, 2021 10:45 pm
According to Yahoo! Finance, 10.84% of ARKK holdings are in TSLA.
The investment company act of 1940 says a fund should have no more than 5% of its holdings in a single stock. How is ARKK able to have 10.84% of its holdings in TSLA? What am I missing?
Chris319 is right. The act says a "diversified" fund cannot have more than 5% of its holdings in a single stock. But funds don't all need to be "diversified" funds. A fund can choose not be restricted to a 5% limit, but then it has to say in its literature, "the fund is not diversified."
There are quite a few "non-diversified" funds, and sometimes the statement is somewhat hidden.
There is a "75-5-10 rule" which applies to "diversified" funds:
- 75% or more of its assets are invested in securities
- No more than 5% of its assets are invested in any one security
- Contains no more than 10% of the outstanding shares for any one security
And the '75%" leaves a 25% loophole. The loophole sounds as if it is for things that are not securities, but apparently it can be used to put 25% of the assets into a single security and still be considered as a "diversified" fund.
In
the prospectus for ARKK,
Some non-diversified funds' web pages and literature are reasonable straightforward and forthright about it. Quite a few actually seem to me to be trying to hide it. There was one specialized ETF, I don't remember which, which was non-diversified... but the factsheet seemed to be trying to use the word "diversification" as much as it could and in big letters all through the main body (because they said it would diversify
your portfolio) while burying the word "non-diversified" in a long fine-print footnote saying merely that the fund present a long list of risks including "non-diversification risk."
But, yeah, I think investors need to understand and appreciate what the Investment Act of 1940 does.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.