The
name says it all: Stock funds invest in stocks. But stock
fund portfolios vary, depending on the fund's investment
objectives and the fund manager's investment style.
In fact, mutual fund research companies identify more than
a dozen varieties of stock funds.
For example, some funds stress
growth
stocks, while some concentrate in
value
stocks. Still others buy more broadly in a particular type
or
subclass
of stocks, such as large-company stocks, and own both growth and value stocks.
Some funds involve more risk to capital than
others because they buy stock in emerging companies, companies
in developing countries, or companies in financial difficulty.
Other funds invest in large, well-established companies that pay
regular
dividends.
And others specialize in the stocks of a particular industry or
sector,
or area of the economy, such as technology or healthcare.
Categories of Stock funds
Type
Objective
Index
Follow market benchmarks, such as the S&P 500 or Russell 2000
Sector
Buy stocks in one
industry or area of the economy
Value
Seek undervalued
stocks that are expected to increase in price
Growth
Invest in companies
that have strong prospects for rapid growth and expansion
Equity Income
Own primarily blue
chip stocks that provide consistent dividend income
Balanced
Mix income and growth
investments to offer the benefits of both
International
Focus completely
on international stocks, including emerging markets
Regional
Concentrate on a
single geographical region or country
Global
Invest in a mixture
of U.S. and international stocks
Socially conscious
Screen potential
investments to meet certain social, ethical, or religious
criteria
Small, medium, and large
Another important way to group stock funds is by market capitalization, or size of the companies whose stock the fund buys. Funds that focus on different sized companies tend to reflect the performance of the subclass of stocks they buy. So, for example, the return on a small-capitalization growth fund may be quite different in any given year from the return on a mid-cap or large-cap growth fund.
