There is no standard definition for focused funds. The most common reference point is the number of individual stocks a fund holds. Generally, a focused fund will hold fewer than 40 stocks, and some of the most-focused funds, like Oakmark Select, hold fewer than 20 names. A fund can also be considered focused if it concentrates a large percentage of its assets in its top five or 10 holdings. Finally, focused can refer to a diversified fund's sector exposure.
Some funds concentrate in only one or a few market sectors.
For example, Gabelli Asset invests nearly half of its assets in service stocks. Sometimes, but not always, funds can become focused by sector because they own few individual stocks. Focused fund managers often run these portfolios in addition to managing more-diversified funds. These managers usually argue that they are better able to generate superior returns by closely following a handful of top-quality stocks rather than a large collection of names. A few great stocks can indeed have a big effect on a compact portfolio's returns.