WHAT IS AN EQUITY FUND?


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Instead of putting all their eggs in one basket, international investors often buy funds that hold several difference shares, there thereby spreading the risks of investing over a wide range of companies. Essentially, equity funds allow investors to avoid the pain of losing all their money on one bankrupt company.

Equity funds normally use professional fund managers to choose which securities-stocks and stock options, mostly to put in the fund. In theory, these professionals understand individual markets better than the average investor and are consequently better able to avoid making costly mistakes.

A plethora of equity funds are available for the international investor. Growth stock funds invest primarily in companies that retain their earnings and concentrate on rapid growth. Income stock funds hold shares in well-established companies that pay consistent dividends. This may of interest for a pension fund, or for retired people who need a constant “fixed” income. Country fund and regional funds provide investors with an opportunity to share in the growth of special foreign markets.

Technology fund offers the possibility for huge future gains- with little expectation of the company providing any income in the first few years. The fact that technological change occurs in different parts of the world at different times allows smart investors to anticipate new “waves” of growth before they happen. In Europe, for example, Internet companies only began to take off after the dot-com wave already peaked in the United States.

Essentially, there are two types of structures for equity funds. A “closed end” fund (called an “investment trust”) has a limited number of shares in the fund could rise if there are not enough to meet demand. In an “open end” fund (called a “unit trust”), new shares can be issued at any time. The price is determined not to buy supply and demand, but by the underlying value of the fund’s holdings, sometimes referred to as a Net Asset Value (NAV).

Politically or socially conscious investors, such as college endowment funds, can invest only in equity funds that correspondent to their view of how the world should run. A socially conscious fund may invest only in companies that guarantee non-discrimination for race, sex, or sexual orientation. While others may guarantee that the companies they invest in do not destroy the environmental goals, these various equity funds often choose to list the best companies in their group-selecting natural resources companies, for example, that do the least amount damage to the environment.

Investors can also invest in groups of companies that are listed on socially conscious and environmentally conscious. Some examples are the Domini 400 Social Index in the United States, the Jantzi Social Index In Canada.


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