Look-through

Reading a fund's actual holdings and their weights, rather than its name or category, to establish what exposure you hold.

Example

A fund of 500 companies with 35.8% in its ten largest and 4.9% across its smallest 250 behaves nothing like the word "500" suggests.

Important

Combine weights across every fund you hold before concluding you are spread. Holding 70% of a broad fund with a 7.2% top holding and 30% of a sector fund with the same company at 19.0% gives a combined 10.74% - more concentration, not less.

Related terms

• Diversification — Holding enough genuinely different assets that no single outcome decides your result. It reduces risk specific to individual holdings; it does not reduce the risk they all share.
• Concentration risk — The risk that a large share of your wealth depends on a single outcome - one company, sector, property, currency, employer or counterparty.
• Market-cap weighting — A rule that sets each holding's share of a fund in proportion to the market value of the company, so the largest company receives the largest allocation.
• Index fund — A fund built to track a market index, such as a broad stock index, rather than to beat it.

Lessons that explain it

• A fund is a wrapper, not an asset class of its own — Buying a fund buys a proportional claim on whatever it holds. Until you have opened the holdings list, the name on the ticket tells you almost nothing about what you own. (9 min)
• The fund manufactures nothing: pass-through, minus costs — A fund's return is the weighted return of its holdings less what it charges. Knowing that changes what you are actually forecasting when you forecast a fund. (11 min)
• What a fund does that nothing else does, and what having it costs you — It converts a sum too small to spread into a spread sum, in one transaction. In exchange you buy every holding at somebody else's weights, including the ones you would never pick. (10 min)

All 578 terms in the Investing glossary