Equity funds

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An equity fund is an investment fund that invests exclusively or predominantly in stocks . It can invest globally as an international equity fund or combine stocks from specific geographical (regions, countries) or economic (sectors) areas. It is also possible to map a specific stock market index.

Investment concepts

  • Industry funds invest in one or more economic sectors. Particular mention should be made of raw materials and energy values, biotechnology and pharmaceuticals , food, utilities, financial values, telecommunications and media, technology , ecology and consumption. In Germany, around 13.3 billion euros are invested in sector funds (as of September 30, 2009).
  • Regional funds concentrate on regions (e.g. North America , Europe , Far East ) or individual countries (e.g. Germany , India ).

The combination of both forms is also possible. Independently of this, there are also funds that are subject to ethical standards and, for example, do not invest in stocks of companies that are particularly environmentally damaging, that produce weapons or that belong to the nuclear industry. Special funds have also been set up for devout Muslims that invest in accordance with the rules of the Sharia , for example neither in the alcohol industry nor in banks that take interest from their debtors.

In general, the risks of a fund can increase with specialization, as fund managers are not allowed to invest in other stocks in difficult times for this specialization and are generally less diversified. Industry funds in particular are considered to be risky.

Distinguishing criteria

Investment process (stock selection):

  • With bottom-up , also known as stock-picking, the focus is on the specific selection of individual stocks. Industry or regional diversification is only used here as a long-term instrument for risk diversification.
  • In the top-down process , fund managers evaluate markets and their prospects and then search for individual stocks in the preferred sectors or regions.

Investment style (investment philosophy)

  • With the growth approach , companies' growth prospects are the focus of stock selection. In this case, growth means that sales, earnings or cash flow per share grow faster than other companies in the industry.
  • The value approach , on the other hand, focuses on a favorable valuation and the stability of the investment. Value-oriented fund managers usually look for and invest in stocks that they consider to be undervalued by the market, usually combined with high dividend yields.
  • With the blend or core approach, both growth and value stocks are taken into account. Depending on the market situation, the fund managers apply the growth or value approach flexibly in order to benefit from both.

Company size

Some investment funds specialize in small companies ( small caps ), others in stock market heavyweights. Investments in standard stocks (highly capitalized stock market heavyweights), which are already included in stock indices such as DAX or Dow Jones Euro Stoxx 50 , are generally less risky. In turbulent times on the stock market, it is easier to sell these stocks quickly due to the large market.

chances and risks

Equity funds are interesting for savers with the primary goal of increasing value. Higher chances, if the industry in question records a bullish (positive) stock market phase, are opposed to losses in the case of a bear market (falling prices). However, due to the broad investment diversification of an equity fund, investing in equity funds is far less risky than investing directly in individual stocks. In addition, the investor can keep his expenditure of specialist knowledge, time and corresponding assets lower compared to direct investments.

The opportunities and risks of equity funds are partially increased or decreased through the use of derivatives . With guarantee funds , the risk of loss is reduced by a guaranteed surrender value on a fixed date. With 130/30 funds, leverage is achieved through the use of derivatives and it is also possible to enter into short positions .

The currency of the stocks in which the fund invests is also important for investors. If some of the shares are quoted in a foreign currency, there is a currency risk . This can lead to exchange rate losses, but also to additional profits from the development of the exchange rate. The currency in which the fund itself is quoted, however, has no influence on the currency risk. A fund listed in euros that invests in US stocks is therefore exposed to currency risk for investors from the euro zone, but not for US investors.

Attention should also be paid to the fund size. It is difficult for very large funds to find enough high-capitalized investment properties to consistently outperform the benchmark index. But investment funds should also have a certain minimum size in order to enable optimal management.

Web links

Wiktionary: Equity funds  - explanations of meanings, word origins, synonyms, translations

Individual evidence

  1. BVI sales statistics: http://www.bvi.de
  2. Focus -Online: Islam Fund with Allah's Favor
  3. Sector fund ( Memento from December 27, 2008 in the Internet Archive )