Funds that invest only in stocks are stock funds. Most mutual funds offer the investor the option of these types of funds as well as blended funds that include stocks, along with bonds and other securities. Different types of stock funds are available, and while the bigger investment firms offer all these options, many smaller ones do not. In general, you should understand the various kinds of stock funds and why you might want to chose one over the other.

 

Value Funds

 

Value funds identify undervalued stocks that might be ripe for growth in the future. These are generally the stocks of older companies that are not growing in revenue as quickly as stocks of newer companies, but are considered more stable. Many of these companies pay dividends. In general, value funds are considered less volatile than other types of stock funds.

 

Growth Funds

 

Growth funds tend to invest in more recently formed companies, which usually do not pay dividends. Such stock is thought to have rapid growth potential.

 

Some growth funds are more conservative than others. An aggressive growth fund is one that looks for companies experiencing dramatic increases in revenue, but without the track records of more established corporations. Growth funds are usually more volatile than value funds, and in the case of aggressive growth funds, they can be much more volatile.

 

Blended Funds

 

Blended funds are funds that combine both value and growth stocks. Less risky than growth funds, they also tend to offer less upside when the stock market is good.

 

Sector Funds

 

Sector funds invest in specific sectors of stocks, such as medical or energy. These funds are dependent on what is happening within the class of industries that make up the sector. For example, when oil prices are high, an investor would tend to do well in a sector fund focusing on energy, and the reverse would be true when oil is in a downward spiral.

 

International and Global Equity Funds

 

International and global equity funds invest in international markets. Pure international equity funds invest solely in international markets, often focusing on a particular country or region. Global equity funds offer a blend of United States and international stocks. Because of the unpredictability of many international markets, these funds can be among the most volatile of stock funds.

 

Growth and Income Funds

 

Offering investments in both dividend-paying stocks and income-producing securities, global and income funds are not as aggressive as growth funds and generally offer some sort of income as part of their investments, often in the form of quarterly dividends. These stock funds are popular with retirees and other people who need or want to live off their stock investments. They usually do not have as much volatility as other types of stock funds, but they do not go up much in a bull market either.

 

Cap Funds

 

Cap funds invest based on the market caps of the companies in their portfolio.

 

--  Large cap funds focus on companies worth $10 billion or more.

--  Small cap funds focus on companies worth less than $1 billion

--  Mid-cap funds are in between large cap and small cap.

--  Micro-cap funds invest in companies worth below $100 million.

 

A stock fund that focuses on market cap tends to be more volatile as the market cap shrinks. Large cap funds are usually considered value funds, whereas small cap and micro-cap funds tend to function more as growth funds, although occasionally a small cap company declined from its previous status as a large cap company to become a value investment.

 

Focused Funds

 

While most stock funds invest in the stocks of a large number of companies, focused funds invest in the stocks of only a few companies. These companies may be either growth or value stocks, and some focused funds offer a blend between the two. The investment strategies of focused funds are often easier to understand, because fewer companies are involved. Conversely, the funds are heavily dependent on the performance of those companies, so the lack of diversification can increase the potential for big gains or losses.

 

Before investing in any stock fund, you should consider speaking to an investment advisor or financial professional, or researching the fund and the stocks it invests in as thoroughly as you can.

 

Additional Resources:

 

--        Almost every investment firm offers an education into the different types of funds they offer. One example is Franklin Templeton Investments at www.franklintempleton.com.

--        For the latest news and other information regarding stock funds, the financial experts at Kiplinger offer a information for the serious or not-so-serious investor at www.kiplinger.com.

Finally, if you are interested in how various stock funds have done in the recent past, HighBeam research offers this information at their www.highbeam.com Web site.