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What are Core Mutual Funds?

Core mutual funds represent the middle ground between Value and Growth, but are not the same as Blend funds.

Core Mutual Funds are in between Growth and Value funds. In other words, companies in their portfolio have Price to Earnings ratios which are higher than those of Value companies but lower than those of Growth companies.

This category is essentially based on the 9-box Morningstar categorization system, which separates equity funds into Small, Mid and Large Cap on the vertical axis and Value, Core, and Growth on the horizontal axis.

It gets slightly more technical than that, of course: the Dow Jones company uses 6 fundamental factors to define Growth and Value, while the S&P uses 3 factors for growth and 4 for value, and Morningstar uses 10 factors. They don’t spend as much effort defining the middle ground, where the Core Fund space is, but it is basically everything in between.

It is easy for investors to confuse Core Mutual Funds with core portfolio holdings. When reading about Blend funds, for instance, many writers will refer to it as a strong core holding, meaning it can represent an integral part of a portfolio around which other fringe or alternative assets are considered and traded, while the core holdings may not change for the duration of the portfolio.

A core section of a portfolio may comprise up to 80% of the portfolio and consist of a small number of individual core positions. This is completely different from a Core Mutual Fund.

“Core” may be part of the fund name, such as Large Cap Core Fund, and it references the fact that the strategy employed by the fund managers favors Core stocks, which are neither considered Growth or Value stocks, but the middle ground between the two.

This can also represent a very strong core position in a portfolio; in fact, some studies suggest that it is a stronger risk-adjusted performer than Blend funds even though Blend is more popular.

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Keywords: mutual funds, stocks, reference rate, value investing, P/E ratio, growth stocks, core fund, blend funds, Morningstar,
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