'Holdings' is explained in detail and with examples in the Corporate Finance edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Holdings refer to the asset contents in a given portfolio which an entity or individual possesses. Pension funds and mutual funds are good examples of organizations that have holdings. These positions can include all sorts of different investment assets and classes. Among these are stocks, mutual funds, bonds, futures, options, ETF exchange traded funds, and private equity assets.
It is both the kinds and amounts of such holdings in any portfolios that determine how well-diversified the portfolio actually proves to be. Well-diversified portfolios often include various sectors of stocks, bonds from a range of maturities and companies, and a variety of other investments that do not correlate with either stocks or bonds. Alternatively, only a few positions in several stocks that come from only one sector would be indicative of poorly diversified portfolios.
It is actually the mix and amount of various asset classes in any portfolio that will substantially determine what its total rate of return will be. The biggest positions will exert a larger impact on the return of a portfolio than marginal or tinier holdings in such a portfolio will. Many investors make it a practice to closely scrutinize the lists of positions which the world’s most successful money managers maintain in an effort to follow their trades.
Such investors try to imitate the trading prowess of these superior results money managers in a variety of ways. It might be the manager has purchased stocks, in which case the imitating investors will try to stake out a similar company position. If these managers sell out of a stake, the investors will similarly sell off their assets in the company. The problem with such a follower strategy is that there is often substantial lag time between that point where the money managers make their moves and when this information becomes public domain knowledge.
There is another variation on the idea of mutual funds, hedge funds, and pension funds. This is the concept of holding companies. Such organizations are groups where the investors organize their positions and assets as an LLC Limited Liability Company. The reasons for this are varied. It might be they wish to decrease their own risk exposure, pool their investment dollars with fellow investors, and/or reduce their taxes as much as possible. Such companies rarely operate their own businesses directly. Instead, they are generally only a vehicle utilized to own various investments and companies.
Probably the best-known example of such an LLC company is the internationally followed Berkshire Hathaway, Inc. This Warren Buffet-dominated Omaha, Nebraska- based corporation originally began as a clothing textiles’ manufacturing firm. Over the last numbers of decades, the corporation has solely existed as Warren Buffet’s personal vehicle to buy out, maintain, and sell out his numerous and wide-ranging investments in various companies. Among the greatest and most significant positions which Berkshire owns are large stakes in the Coca-Cola Company, Dairy Queen Inc, and their wholly controlled subsidiary GEICO Government Employees Insurance Company.
The simplest way to envision these holdings is to mentally picture a large bucket, which represents the mutual fund. Every rock within the bucket stands for an individual bond or stock position. When analysts add up all of the rocks (as stocks or bonds), this equals the aggregate numbers of all holdings.
Figuring out the best mix of these holdings is the challenge that mutual funds, pension funds, and hedge funds all grapple with on a regular basis. It all comes down to the type of fund which they represent. Those bond funds or index funds would anticipate having many positions. This could mean from hundreds to thousands of different bonds and stocks. With the majority of other funds, too many or too few positions is risky and dangerous. Those funds that hold merely 30 positions would be subject to extreme volatility and single stock risks. If they had 500 to 600 different stocks or bonds then the fund would be as large as many indices like the S&P 500.