The degree to which a mutual fund's assets can be concentrated in a relative handful of securities depends on whether the fund is legally classified as diversified or non-diversified.
Diversified funds--which comprise more than 90% of all funds available today--are required to have three-quarters of their assets divvied up so that no single security amounts to more than 5% of the fund.
Technically, a manager of a diversified fund could invest the other quarter of the fund in a single security. But, in fact, few diversified funds ever exceed the 5%-of-assets line for individual securities.
Diversified funds, then, can hold hundreds or even thousands of stocks. Which, not surprisingly, causes many of them to perform in line with the broad market, as measured by the Standard & Poor's 500-stock index, for example. Naturally, a fund that looks like an index fund is a lot less likely to beat the performance of that index.