Mutual Funds
Mutual investment funds consist of money pooled by individuals that will be invested on their behalf. This amount is managed by a team of professionals who make sure to invest these funds according to the exact mandate they entrusted with. For example, a fund management team could be asked to invest in assets such as stocks, bonds, Treasury bills, etc.
Fixed Income
Monet Market Funds
These type of funds offer investors capital protection. They invest in short term products such as tresorary bills short term bonds, bankers acceptances and short term commercial paper. There is practically no risk. Potential returns are quite slim also.
Bond Funds
These type of funds consist of bonds issued by federal, provincial, municipal governments. They may also hold corporate bonds at times. Their risk is minimal as emphasis is security of capital while providing a certain level of stability when it comes to income.
Mortgage Funds
As the name indicates, these type of fixed income funds invest in pools of mortgages usually consisting of residential mortgages held by Canadian banks. They may also hold commercial mortgages. The risk associated with this type of fund is also quite low.
Dividend Funds
These funds offer investors a potential return of capital appreciation while providing an income or dividend stream by investing in preferred shares or dividend paying stocks. Their risk is considered to be above fixed income products but less than 100% equity type investments.
Mixed Funds
Balanced Funds
These funds offer a mix of security, income and growth. They hold a combination of fixed income products such as bonds, dividends and equities. They usually must have a minimum amount in each asset class with another amount being shifted from one to another as the portfolio manager sees fit according to the economic conjuncture. These funds'rsk is considered average or moderate.
Asset Allocation Funds
These funds are similar to balanced funds in that they hold a mixture of bonds, dividends and equities but the portfolio manager has MORE flexibility to allocate his positions as he/she sees fit.
Equity Funds
These are probably the most popular type of mutual funds. They hold equites or stocks of companies traded on stock exchanges.
Geographic Specific Fund
These funds invest in shares of companies from a certain country or region only such as a Canadian Equity fund, an American, European, Asian, Latin American or Emerging Market equity fund. The risk associated to these funds range from moderate to high.
Capitalisation Specific Fund
These funds have an objective to invest in companies according to their size. Blue chip companies is a term used to describe the biggest companies in the country or index. In Canada, bank stocks are considered Blue Chip. Their market capitalisation (market value) is in the billions of dollars. Small Cap stocks are defined by companies that are not as well known and depending on who is defining small caps, often their market capitalisation would be worth in the hundreds of millions of dollars. Over the long run, small caps offer more growth potential and therefore have higher potential returns, with obviously more risk.
Sector Funds
These funds invest in certain specific sectors only. They can specialize in investing in one sector of the economy only such as technology, or resources, or financial services, or precious metals etc... Because of their concentrated mandate and lack of diversification, these funds are considered high risk.
Socially Responsible Funds
Ethical Funds
These funds managers, contrary to others, make their decisions on which company to include in their portfolios by considering criteria such as social and environmental factors. The will choose the companies that make the most effort compared to their peers to help the environment and society. The usually always exclude companies in the tobacco, alcohol, nuclear energy and military.
Management Style
Value Style
A value style manager will invest in a company which currently trades at a discount to what he/she considers to be the true intrinsic value of the firm. Companies trading at low price/earnings multiple is usually a characteristic they are looking for. The are looking for bargains and then wait the time needed for the market to realize how cheap the stock is.
Growth Style
A growth style manager will look for companies that are growing at a faster pace. They will pay less attention to the current price of the company but more to where it can be in the near future.
Momemtum Style
These managers try to quickly capitalise on stocks which are seeing there margins growing very rapidly on a short term basis. Contrary to a value style manager, the turnover ratio with these funds is extremely high and the average holding period of a stock is extremely low. These funds usually pay out higher distributions because of that turnover.
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