What is 100% Equities Strategy?
Depending on investors' knowledge and the risk profile, investors choose asset classes that ensure good profits. Those who are deeply familiar with the equities market know that it is one asset class that can provide the highest returns. Such investors prefer to allocate their full capital towards equities. Therefore, they deploy a stock market strategy known as the 100% Equities Strategy.
A 100% Equities Strategy?
A 100% equities strategy is used by fund houses or individual investors to allocate all of the capital towards equities. The 100% equities strategy is generally utilised by mutual funds to purchase stocks based on the shareholder’s investment. The sole goal of the 100% equities strategy is to increase the profit margin of the fund to the maximum after analysing high growth equities and avoiding all the other asset classes. The equities used for investing under the 100% equities strategy can be of any type, such as stocks, over-the-counter stocks, or even private equity shares.
Understanding 100% equities strategy
100% equities strategy crafts a portfolio that looks to make all the profit and return on investment through equities. This strategy is completely predominant in the share market and covers a wide area of offerings within equities. Generally, most 100% equities strategies that mutual funds deploy have an investment objective of allocating at least 80% of the capital towards equities. The 80% allocation is a formality with the aim of regulatory or registration documentation according to the majority of equity funds in the marketplace. However, numerous funds allocate 90% to 100% of the capital towards equities when following the 100% equities strategy.
100% Equities Strategy ensures that the fund chooses stocks with profit-making potential and does not invest in other asset classes. Furthermore, the 100% equities strategy does not follow investments in related products such as equity derivatives. Funds following the 100% equities strategy do not employ riskier strategies such as short telling or purchasing on margin. 100% equities strategy is all about a more focused and traditional approach to equity investment.
100% Equities Strategy Types
When investing in a fund that follows the 100% equities strategy, the investors can choose from a wide range of sub-classes. However, these sub-classes are all within equities and range from individual and combination of stocks with labels such as growth stocks, value stocks, defensive stocks, aggressive growth stocks and capital appreciation stocks. Mainly there are four major characteristics that nearly all 100% equity strategies come with:
- Growth: Growth investing is used by investors who have a higher risk profile and who invest aggressively in high growth companies.
- Value: Value stocks are also known as long-term core holdings. Investors utilise fundamental analysis to identify undervalued stocks.
- Income: Income funds focus on investing in equities that come with high current income. The main focus is to identify and invest in stocks that provide steady returns and dividends.
- Market Capitalisation: This category of funds invests in stocks based on their market capitalisation. Generally, this category focuses on large-cap, mid-cap and small-cap stocks.
Advantages of All Equities
All-equities funds invest primarily in stocks and aim to diversify within the asset class. It offers advantages such as increased profit potential, dividend income, exercise control, right over assets and income, bonus shares, liquidity, stock split, tax benefits, residual claim, etc. In the case of a bull market, an all-equity fund can allow for unprecedented gains as almost all the stocks appreciate at price and reach their all-time highs. Furthermore, equities are highly liquid and can be sold by investors any day to realise cash and use for other purposes.
Equities are one of the most sought after asset classes as it allows investors to earn better returns than other traditional investment instruments. Furthermore, as equities include various other sub-classes, it becomes easy for investors to diversify within the asset class. The 100% equities strategy can prove to be an ideal stock market strategy to focus fully on the most rewarding asset class and make hefty profits along the way. However, as the stock market is volatile, it is vital that you first understand the 100% equities strategy meaning before you invest in funds that follow the technique.
Frequently Asked Questions Expand All
It is really good to have 100% equity. If you are into a long-term investment, you can deploy the 100% equities strategy and ensure you earn good returns based on the bullish market. It will enable portfolio diversification within equities and ensure an improved return on investment.
All-equity focused funds invest in a limited number of stocks, not exceeding more than thirty. The main aim of such funds is to invest in various sub-classes of stocks and ensure better returns than other investment instruments.
An equity investment is a process of investing one’s capital in a company’s stocks by purchasing shares of that company in the stock market. When people buy shares of a company, they are called the shareholders and become part-owners of the company. These shareholders can sell the held shares at any time using a Demat and trading account.