An equity fund is a mutual fund that invests exclusively or predominantly in equities. He can invest globally as an international equity fund or shares from specific geographical ( regions, countries ) or economic (industry ) summarize areas. Also the picture of a specific market index is possible.
- Sector Funds invest in one or more sectors of the economy. Mention may be made especially of raw materials and energy stocks, biotechnology and pharmaceuticals, food, utilities, financials, telecommunications and media, technology, ecology and consumption. In Germany, in sector funds about 13.3 billion euro invested (as at 30 September 2009).
- Regional Funds concentrate on regions (eg North America, Europe, Far East ) or individual countries (eg Germany, India).
Also, the combination of both forms is possible. Regardless, there are also funds that submit to ethical standards and not, for example, invest in stocks of companies that operate particularly destructive to the environment that produce weapons or are members of the nuclear industry. Even for devout Muslims special funds have been investing the rules of Sharia compliant, so take for example, either in the alcohol industry still banks, the interest from their debtors.
In general, the risks (but also his chances ) of a fund with a specialization grow, because the fund manager is not allowed to invest in other stocks in difficult times for this specialization and are generally placed less wide. Just industry funds are considered risky.
Investment process (single selection ):
- In the bottom -up, also called stock-picking, the focus is on the specific stock selection. Sectoral or regional diversification is used here only as a long -term instrument for risk diversification.
- In the top- down method evaluate fund manager markets and their prospects and look in the favored sectors or regions then to individual stocks.
Investment style ( investment philosophy )
- When you blend or core approach both growth and value stocks are considered. The managers adopt depending on the market situation flexibly to growth or value approach to stock to take advantage of both.
- When growth approach the growth prospects of the company are at the center of the selection. Growth in this case means that sales, profit or cash flow per share to grow faster than other companies in the industry.
- When value approach, however, is a favorable valuation and stability of investments in the foreground. Search value- oriented fund managers and generally invest in stocks that they categorize as undervalued by the market, usually associated with high dividend yields.
Some mutual funds have other specializes in small companies ( small caps ) on stock market heavyweights. Investments in large-cap stock market heavyweights (this is sometimes referred to as blue chips ) that are included, for example, already in stock indices such as the DAX at the Frankfurt stock exchange or the Dow Jones Euro Stoxx 50, are associated usually with less risk. In troubled times, a stock market faster sale of these values because of the large market is easier.
Opportunities and risks
Equity funds are of interest for savers with the primary goal of increasing value. Higher chances if the industry in question experienced a bullish (positive ) exchange phase ( falling prices ) are in a bear if necessary against losses. Due to the broad diversification of its investments in equity funds, however, the system is far less risky than investing in individual stocks in equity funds. In addition, the investor can keep his effort the expertise, time and corresponding assets compared to direct investment lower.
Risks and rewards of equity funds are partially raised or lowered through the use of derivatives. At Guarantee Fund the risk of loss is reduced by a guaranteed surrender value on a fixed date. In 130/30-Fonds leverage is through the use of derivatives obtained and also received the permits of short positions.
For the investor, also important is the currency of the stocks in which the Fund invests. Listed part of the shares in a foreign currency, a currency risk. It can thus arrive at foreign exchange losses, but also to additional profits from the development of foreign exchange. The currency in which the fund companies themselves, however, has no influence on the currency risk. Quoted prices in Euro Fund, which invests in U.S. equities, but not so subject for investors from the euro - zone to currency risk for U.S. investors.
Also, the fund volume should be given attention. So it is difficult for very large funds to find enough highly capitalized investment properties, to beat the benchmark index permanently. However, a certain minimum size should be of mutual funds in order to allow an optimal manage.