A very good way of increasing one’s wealth is by investing in equity funds. The principal investment of an equity fund is in stocks, with the target of capital appreciation.
In selecting some of the best equity funds in which to invest, an individual has to consider a number of factors which include among others historical performance, management of the fund, the expense ratios, and the economic environment. The following are some of the best categories of equity funds and notable funds within those categories:.
1. Large-Cap Equity Funds
Large-cap equity funds are those investment portfolios that focus on well-established firms whose market capitalization is over $10 billion. This fund class is characterized by stability and the potential for steady growth.
Notable Mention: Vanguard 500 Index Fund – VFIAX
It seeks to track the performance of the S&P 500 Index, providing exposure to 500 of the largest U.S. companies. Besides that, this fund has an extremely low expense ratio, with strong historical performance, making it an excellent choice for the long-term investor.
2. Mid-Cap Equity Funds
Mid-cap equity funds invest in companies with a market capitalization ranging from $2 billion to $10 billion. Usually, such investments promise better growth prospects than large-cap stocks; however, they are more volatile.
Notable Fund: T. Rowe Price Mid-Cap Growth Fund (RPMGX)
This fund primarily invests in mid-sized growth companies and has consistently outperformed its benchmark over the long term. With its seasoned management team and detailed research process, the class is well set up for mid-cap exposure.
3. Small-Cap Equity Funds
Small-cap equity funds are those targeting companies whose market capitalization is less than $2 billion. Invested in such funds, though more risky than some other investments, these have higher growth potential, too.
Noteworthy Fund: DFA U.S. Small Cap Fund DFSTX
The DFA U.S. Small Cap Fund emphasizes diversified investment in smaller companies. It has reaped excellent past performance from its investment philosophy on value and pricing in efficient markets.
4. International Equity Funds
International equity funds invest in companies outside of the U.S. and can therefore offer diversification benefits. Every investor looking for portfolio diversification on an international scale should not be without them.
Notable Fund: Fidelity International Index Fund (FSPSX)
The fund tracks the investment results of the MSCI EAFE Index, composed of equities from the developed markets, excluding North America. It gives diversified international exposure at a very low expense ratio.
5. Sector-specific equity funds
These funds target specific sectors of the economy, such as technology, healthcare, or energy. In addition to serving as a good hedge against market fluctuations, they can also provide investors with targeted exposure.
Notable Fund: Vanguard Information Technology ETF(VGT)
Economically, VGT offers great exposure to a diverse constituent base within the technology sector-from large-cap stalwarts to small innovative companies. This is a trust that has been doing relatively well and reflects the growth trajectory of the sector.
6. ESG Funds
Environmental, Social, and Governance (ESG) funds focus on companies that meet certain ethical and sustainability criteria. These funds appeal to socially conscious investors. Notable Fund: iShares MSCI KLD 400 Social ETF (DSI) The fund invests in various firms characterized by positive ESG features, thereby adopting a well-diversified approach toward socially responsible investment. It has returned solid results while staying true to the tenets of ethical investing.
Conclusion
While choosing equity funds for investment, nobody should ever keep his financial goals, risk tolerance, or investment horizon out of mind. Diversification across different fund categories reduces the risk profile and positions the portfolio for growth. Review the prospectus, performance history, and expense ratios of a fund before making an investment decision in it. With proper planning and research, equity funds house the potential of becoming a strong tool to attain long-term financial goals.
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