Fund Stock
Fund Stock without undue risk to capital
The investment seeks long-term capital appreciation without undue risk to capital. Current income is incidental. The fund actively allocates assets among countries, geographic regions, and currencies. The advisor tries to anticipate changes in U.S. and foreign markets, and considers political and economic conditions to determine allocations. The fund may invest in securities issued anywhere in the world, and there is no limit on the amount it may invest in any one country or currency. It may invest no more than 25% of assets in gold and silver bullion. The fund may leverage, sell short, and engage in options and futures.
What Stock fund Invests
The stock fund or equity fund is a fund that invests in equities more commonly known as stocks. Stock funds are contrasted with bond funds and money funds. Fund assets are typically mainly in stock, with some amount of cash, which is generally quite small, as opposed to bonds, notes, or other securities. This may be a mutual fund or exchange-traded fund. The objective of an equity fund is long-term growth through capital gains, although historically dividends have also been an important source of total return. Specific equity funds may focus on a certain sector of the market or may be geared toward a certain level of risk.
Stock funds can be distinguished by several properties. Funds may have a specific style, for example, value or growth. Funds may invest in solely the securities from one country, or from many countries. Funds may focus on some size of company, that is, small-cap, large-cap, et cetera. Funds which involve some component of stock picking are said to be actively managed, whereas index funds try as well as possible to mirror specific stock market indices.
Exchange-Traded Fund – (ETF)
Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.
By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you’d pay on any regular order.
One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500 index and trades under the symbol SPY.
What are the Exchange-Traded Funds (ETFs)
Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs in the following respects:
Investors generally do not purchase Creation Units with cash. Instead, they buy Creation Units with a basket of securities that generally mirrors the ETF’s portfolio. Those who purchase Creation Units are frequently institutions.
ETFs do not sell individual shares directly to investors and only issue their shares in large blocks (blocks of 50,000 shares, for example) that are known as “Creation Units.”
EFTs purchasing Unit
After purchasing a Creation Unit, an investor often splits it up and sells the individual shares on a secondary market. This permits other investors to purchase individual shares (instead of Creation Units).
Investors who want to sell their ETF shares have two options: (1) they can sell individual shares to other investors on the secondary market, or (2) they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. So, for example, an ETF invested in the stocks contained in the Dow Jones Industrial Average (DJIA) would give a redeeming shareholder the actual securities that constitute the DJIA instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be—and may not call themselves—mutual funds.
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Hedge funds
- “Hedge fund” is a legal structure. Hedge funds often trade stocks, but may trade or invest in anything else depending on the fund. This is done to reduce the risk of investments in stocks.
Fund of funds
- “Fund of funds” implies that the assets of a fund are other funds. The other funds may be stock funds, in which case the original fund can be called “fund of stock funds”. See fund of funds.
Index fund
- Index funds invest in securities to mirror a market index, such as the S&P 500. An index fund buys and sells securities in a manner that mirrors the composition of the selected index. The fund’s performance tracks the underlying index’s performance. Turnover of securities in an index fund’s portfolio is minimal. As a result, an index fund generally has lower management costs than other types of funds.
Growth fund
- A growth fund invests in the stock of companies that are growing rapidly. Growth companies tend to reinvest all or most of their profits for research and development rather than pay dividends. Growth funds are focused on generating capital gains rather than income.
Value fund
- This is a fund that invests in “value” stocks. Companies rated as value stocks usually are older, established businesses that pay dividends.
Sector fund
- A fund that invests in one area of industry is called a sector fund. Most sector funds have a minimum of 25% of their assets invested in its specialty. These funds offer high appreciation potential, but may also pose higher risks to the investor. Examples include gold funds (gold mining stock), technology funds, and utility funds.
Income fund
- An equity income fund stresses current income over growth. The funds objective may be accomplished by investing in the stocks of companies with long histories of dividend payments, such as utility stocks, blue-chip stocks, and preferred stocks.
- Option income funds invest in securities on which options may by written and earn premium income from writing options. They may also earn capital gains from trading options at a profit. These funds seek to increase total return by adding income generated by the options to appreciation on the securities held in the portfolio.
Balanced fund
- Balanced Funds invest in stocks for appreciation and bonds for income. The goal is to provide a regular income payment to the fund holder, while increasing its principal…
Asset allocation fund
- These funds split investments between growth stocks, income stocks/bonds, and money market instruments or cash for stability. Fund advisers switch the percentage of holdings in each asset category according to the performance of that group. Example: A fund may have 60% invested in stocks, 20% in bonds, and 20% in cash or money market. If the stock market is expected to do well, that could switch to 80% stocks, and 10% each in both bond and cash investments. Conversely, if the stock market is expected to perform poorly, the fund would decrease its stock holdings.
It’s important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk – it’s never possible to diversify away all risk. This is a fact for all investments.
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President Obama has been making a similar argument, and has made the “carried interest” exemption from ordinary income rates, which benefits hedge fund and private equity managers, the centerpiece of his tax campaign. “How can we ask a student to pay more for college before we ask hedge fund managers to stop paying taxes at a lower rate than their secretaries? It’s not fair. It’s not right,” the president said a few weeks ago.
Warren Buffett pays a lower tax rate than his secretary and the 19 other people who work in his office. He pays a much lower rate than I do, and, I suspect, lower than nearly everyone reading this column. So, no doubt, do a long list of American billionaires, including Stephen Schwarzman of Blackstone and the hedge fund king John Paulson.
The notion that low capital gains tax rates are a good thing because they promote investment, lead to job creation, encourage people to sell assets without fear of tax consequences and actually raise total tax revenue is so entrenched in both parties that the idea of equalizing capital gains and ordinary income rates is barely mentioned or, when it is, is quickly denounced. It’s become a third rail of tax policy and electoral politics. “It’s now so woven into standard thinking that it’s become a cultural norm,” a prominent hedge fund. Read more…
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