A stock fund or equity fund is a fund that invests in Equities more commonly known as stocks. Such funds are typically held either in stock or cash, as opposed to Bonds, notes, or other securities. This may be a mutual fund or exchange-traded fund. The objective of an equity fund is long-term growth through capital appreciation, although dividends and interest are also sources of revenue. Specific equity funds may focus on a certain sector of the market or may be geared toward a certain level of risk.
Stock funds can be distinguished by several properties. Funds may have a specific style, for example, value or growth. Funds may invest in solely the securities from one country, or from many countries. Funds may focus on some size of company, that is, small-cap, large-cap, et cetera. Funds which are managed by professionals are said to be actively managed where as Index funds try as best as possible to mirror specific market indices.
|Investors interested in:
||Should invest in:
|Safety of Principal
||Government Bond Funds
||Money Market Funds
|Maximizing Current Income
||Corporate Bond Funds
Index funds invest in securities to mirror a market index, such as the S&P 500. An index fund buys and sells securities in a manner that mirrors the composition of the selected index. The fund's performance tracks the underlying index's performance. Turnover of securities in an index fund's portfolio is minimal. As a result, an index fund generally has lower management costs than other types of funds.
A growth fund invests in the stocks of companies that are growing rapidly. Growth companies tend to reinvest all or most of their profits for research and development rather than pay dividends. Growth funds are focused on generating capital gains rather than income.
This is a fund that invests in "value" stocks. Companies rated as value stocks usually are older, established businesses that pay dividends.
Sector (Specialized) Fund
A Fund that tracks one area of industry, is called a Sector Fund
. Most sector funds have a minimum of 25% of their assets invested in its specialty. These funds offer high appreciation potential, but may also pose higher risks to the investor. Examples include gold funds (gold mining stock), technology funds, and utility funds.
An income fund stresses current income over growth. The funds objective may be accomplished by investing in the stocks of companies with long histories of dividend payments, such as utility stocks, blue-chip stocks, and preferred stocks.
- Option income funds invest in securities on which options may by written and earn premium income from writing options. They may also earn capital gains from trading options at a profit. These funds seek to increase total return by adding income generated by the options to appreciation on the securities held in the portfolio.
Balanced Funds invest in stocks for appreciation and bonds for income. The goal is to provide a regular income payment to the fund holder, while increasing its principal.
Asset Allocation Fund
These funds split investments between growth stocks, income stocks/bonds, and money market instruments or cash for stability. Fund advisers switch the percentage of holdings in each asset category according to the performance of that group.
Example: A fund may have 60% invested in stocks, 20% in bonds, and 20% in cash or money market. If the stock market is expected to do well, that could switch to 80% stocks, and 10% each in both bond and cash investments. Conversely, if the stock market is expected to perform poorly, the fund would decrease its stock holdings.
Fund of Funds
This is a relatively new type of fund that invests in hedge funds not normally available to retail investors. (Hedge funds are not available to most investors because of the large investment requirements (typically $1 million or more).
These funds use aggressive strategies to generate income. This includes short selling, the purchase and sale of options or integrated option strategies or structured notes, and the trading of futures. In the view of benefiting from event-driven analysis, the manager of these funds create a combination of investment and derivative strategy aiming at arbitrage profit.
MNI - Market Neutral Investments through Securities Hedging:
TA- Timing arbitrage from market benefits
2SDM Short Selling in downward market
Event-driven strategy through Special market conditions
Value and Emerging Markets
Fund portfolio of Funds indexed
Market Neutral - Arbitrage
Small Cap companies are companies with less than $5 billion in capitalization.
Mid Cap companies have between $5 and $10 billion dollars of capitalization.
Large Cap businesses are those that have more than $10 billion dollars in capitalization.