Equity Funds
Equity funds invest in a diversified portfolio of shares of different companies and industries. Depending on the investment strategy, some may only invest in large companies and others in medium to small companies. There are also funds that will only invest in particular sectors, such as health, or telecommunications. Although every fund manager is different, there are three broad archetypes when it comes to investment strategies; value, growth and blend.
Value funds
In general, value funds seek to discover cheap or undervalued shares. This may include shares that the fund manager believes are having short-term problems and are priced low relative to their earnings potential. Whilst there is potential for growth, there is also the risk that these ‘undiscovered gems’ will remain undiscovered.
Growth funds
Growth funds on the other hand, as their name suggests, look for the fastest growing funds on the market. Growth stocks, per definition, are shares in companies that are growing faster than earnings on the broad market. Managers of these funds are willing to take more risk to achieve above-average earnings momentum. If growth remains strong, these funds reap the benefits. However, as growth slows, these funds are likely to fall the furthest. As the most volatile of the investment styles, growth funds are ideal for the long-term investor with enough time to withstand any short-term losses.
Blend funds
Some funds may be a mixture of both value and growth stocks - a blend fund. In order to judge whether a fund is suitable for your needs, you need to examine its objective along with your own and this is where your financial advisor can help.