Concentration of risk
The performance of a mutual fund and the fund manager is measured through the out-performance that it generates. This means that if the mutual fund does better than its benchmark then it will be said to have done a good job.
If the fund manager spreads out his entire portfolio over a lot of securities then there is a chance that gaining more than the rise in the market or losing less than the market fall of its benchmark index could become a bit difficult. One of the ways to ensure a good performance for equity-oriented funds is to concentrate the investment in a few companies or a sector so that if this area performs then the overall performance of the scheme will be very strong.
Also see: Be your own financial planner