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For instance, are there limits to how concentrated a portfolio in terms of industry allocation?

If so, where can I find such information about the constraints each fund has?

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You would typically find such information in a prospectus. For example the prospectus of the Vanguard World Equity fund (VGHEX) doesn't have any wording putting hard limits on industry allocation or any kind (to be honest I didn't read every page). Vanguard is only bound by what they describe in their prospectus. For other funds which are set out to explicitly track a benchmark the prospectus has more restrictive wording:

The Investment Manager may restrict the extent to which the Fund’s holdings deviate from the Index constituents and typically limits individual security weightings in the Fund at the time of purchase to +/- 50 basis points of the Index weighting and +/-60 basis points of the Index weighting thereafter. The Fund typically seeks to maintain a neutral sector / industry weight versus the Index to neutralize the impact of making calls on sectors / industries and instead to focus on stock specific selection. Deviation from the Index’s country weighting is typically limited to +/-4%. Deviations from the Index are subject to a Tracking Error limit, which, under normal market conditions, will typically be 3%. This may limit the extent to which the Fund can outperform the Index. Such limits may change or be removed from time to time at the Investment Manager’s discretion.

but there is still leeway. If you want to invest in a mutual fund and are worried about industry allocation you will have to do your due diligence and find the fund that has a prospectus you feel comfortable with.

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  • $\begingroup$ Bob, thanks much for the answer. My understanding is that, for the actively managed funds, even when they don’t have officially declared restrictions, they often have internal restrictions imposed by their risk managers. Further, I’m looking for any studies that list the most common types of restrictions. This may come from industry pieces, or a book, etc... does anything ring a bell? $\endgroup$ – Slow Learner Feb 28 at 18:46
  • $\begingroup$ I understood your question to be about legal/contract limits but you’re more interested in the kind of restrictions funds actually have? $\endgroup$ – Bob Jansen Feb 28 at 19:00
  • $\begingroup$ Yes indeed. Sorry if the question was not clear; I could go back to edit it if needed! $\endgroup$ – Slow Learner Feb 28 at 21:44

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