Objectives
There are several different basic objectives, and it is important to understand what each strategy is so you can evaluate the strategies of your funds and determine if the fund manager is actually following their stated strategy (sometimes funds will state one strategy and then practice another). The major strategies are as follows:
Capital Appreciation
Capital appreciation basically means that managers are given the discretion to buy all types of securities. They are not forced to adhere to any specific philosophy, but may do so.
Value
Value funds tend to focus on a company's assets. They tend to look for companies trading at an attractive valuation relative to the underlying value of the business. Value has become a hot buzzword on Wall Street, and many so called 'value' funds follow an approach that is nowhere near this description.
Quality Growth
These funds invest in mid- large companies that are well-established, expanding their operations, and have predicted sales and earnings growth of at least 15%.
Emerging Growth
These funds look for high growth companies in expanding markets. They tend to focus on small cap stocks that have the potential to become large caps. These funds tend to be more volatile than average, but offer the potential for higher capital appreciation.
Income
Income funds focus on investments with high yields, such as utility stocks, and strive to maximize dividend income.
Index
Index funds purchase all the stocks in a particular market index and intend to replicate the performance of the index. They offer investors an opportunity to 'buy the market' and also offer low fees compared to other types of funds.
Special Situations
Special situations funds look for companies that have recently had some sort of dramatic unique change that will likely have a positive impact on their earnings. These companies are not required to have anything in common other than this. Companies in a single fund can be a variety of sizes and in a variety of different industries. A special situations company could be a retail company that is restructuring its inventory and distribution system, an energy company that is well positioned to profit from a turnaround in energy prices, or a variety of other possible situations. |
