Whatever type of investment fund you take and no matter what its investment strategy looks like, the objective of the fund is always the same: to achieve the best possible performance, in other words, to make the value of its investment grow as much as possible for the benefit of its investors.
We have already seen that investment funds may invest in an almost unlimited variety of assets: stocks, bonds, cash, real estate, collectibles, precious metals, commodities ….
Once the choice of assets made, the fund will specialize.
Consider a fund that is invested in equities.
This fund may start by specializing geographically, by limiting its investments on specific continents, economic zones, regions or countries.
It can also specialize in one or more well-defined economic sectors such ass biotechnology, banking, health, automotive, telecommunications or computers …
Then, an additional criterion of specialization may be the size and / or the reputation of the companies in which it will invest: large-cap companies or, on the contrary, small and medium sized enterprises, global brands or rather young companies that have yet to gain a reputation …
The fund manager will probably also consider whether to invest more in shares of companies which he believes are undervalued and do not reflect the true value of the company (so-called “value stocks”) or in shares of companies that offer significant growth potential (so-called “growth stocks”). Or in shares of companies which regularly distribute above average dividends to their shareholders (“income stocks”)…
Obviously, the manager will not be limited to a single criterion of specialization, but will combine several of them and focus, for example, on very large US companies that pay high dividends. All sorts of combinations are conceivable.
Once the decision on the specialization is taken, it is essential to select the “right” stocks, i.e. to find those that are likely to deliver the best performance. To do this, the fund managers conduct a lot of research and analysis (or have them carried out by specialists) with the aim of identifying slightly faster than other investors that particular company that will make a super performance and investing in its shares before the rising demand from other investors pushes their price up.