Research_strapline

Are you an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor

×

Register for FundCalibre!

We just need to know
if you are an:

Don't let the labels put you off!
If you're not an investor, but you want to learn, you can select investor

×

What are the different investment sectors?

Before you choose a fund, you will probably first need to decide which sectors you want to invest in - for example emerging markets, UK equities or European bonds.

Learn about all the different investment sectors below to help you build a diversified portfolio.

Learn more: How to choose a fund

Absolute return

Absolute return funds aim to deliver positive returns, in all market conditions, with low volatility. The funds often use investment tools to try to protect against falling markets. This sector is very diverse, however, and it is very hard to compare one fund against another, as they are all so very different, both in terms of where they invest and how much risk they take. So each fund should be looked at individually.

Asia

Funds in this category will invest primarily in investments based in Asia. Like Europe, there are approximately 50 countries on the continent and, as this is such a wide remit, investments can vary widely from fund to fund. Some funds will stick to developed Asia – investments in countries like Taiwan or South Korea, whilst others will also include investments in emerging Asia. China is the dominant economy in the area. Funds will also vary in the size of company in which they invest. For example, some are predominantly invested in larger companies, whilst others invest mainly in smaller companies. Some invest in companies of all sizes.

Corporate bonds

Corporate bonds are those issued by companies and tend to come in two categories: investment grade and high yield. Investment grade bonds are deemed to be from better quality and less risky companies than high yield bonds.

Emerging market bonds

Emerging market bonds are those issued by governments and companies based in emerging markets. They tend to be split into two categories: those where the bonds are issued in local currencies and those where the bonds are issued in US dollars. This type of bond is deemed to be of higher risk and therefore, the yield on these bonds tends to be higher to compensate investors for the added risk.

Emerging market equities

Emerging markets are those where certain economic and financial data have not yet reached a certain level. For example, where the average wages are not at a certain level. Emerging markets are attractive to investors as they often experience faster economic growth. However, these investments also come with much greater risk, due to things like political instability, currency volatility and very small stock markets. Funds will also vary in the size of company in which they invest. For example, some are predominantly invested in larger companies, whilst others invest mainly in smaller companies. Some invest in companies of all sizes.

Equities

Equity is another word for 'stock' or 'share'. Fund managers use investors' money to buy shares in companies. Some equity funds will have a very wide remit, investing in companies from all around the world. Others will invest in a single region, like Europe, and some will invest in companies in a specific area, like healthcare. Another consideration with equity funds is the size of company in which they invest. Some will invest in companies of all sizes – from a multi-national bank to a small supplier of tools, for example. Others will be more specific and invest in companies within a certain range. Browse all Elite Rated equity funds.

Europe equities

Funds in this category will invest primarily in investments based in Europe. With approximately 50 countries in Europe and 28 EU member states, this is quite a wide remit and can vary from fund to fund. Therefore, when it comes to investments, the continent tends to get broken down in a few ways. For example, central Europe generally refers to France and Germany and countries in their vicinity, northern Europe is basically Scandinavia and southern Europe is anything below Spain. Funds will also vary in the size of company in which they invest. For example, some are predominantly invested in larger companies, whilst others invest mainly in smaller companies. Some invest in companies of all sizes.

Fixed interest

Fixed interest funds are also known as bond funds. Managers of these funds essentially give loans to companies or governments in return for a fixed rate of interest. Loans to companies are known as corporate bonds. Bonds are given a risk rating by ratings agencies. If the ratings agency believes there is a high risk that a company or government won't be able to repay their loan, the bond is called high yield (as the fixed interest paid is generally higher to compensate for the risk involved). If the ratings agency think the risk is low, the bond is known as investment grade. Government bonds from developed countries are generally deemed to be the least risky. Some funds can invest in all these types of bonds (and are known as Strategic Bond funds), others are limited to one or two areas.

Global equities

Funds in this category can invest in companies listed anywhere in the world. This is a wide remit and can vary from fund to fund. Some funds will stick to companies in developed markets only, like the UK, Europe, US and Japan, whilst others will also invest in companies in emerging markets. Funds will also vary in the size of company in which they invest. For example, some are predominantly invested in larger companies, whilst others invest mainly in smaller companies, and some invest in companies of all sizes.

Global bonds

Funds in this category can invest in bonds of governments and companies listed anywhere in the world. This is a wide remit and can vary from fund to fund. Browse all Elite Rated bond funds.

Government bonds

Government bonds are bonds which are issued by governments and are also referred to as 'sovereign debt'. In the UK they are called 'gilts' and in America they are referred to as 'US treasuries'. Government bonds of developed markets are usually deemed to be less risky than those issued by governments in emerging markets. The latter will usually pay a higher yield to compensate for the extra risk. Browse all Elite Rated bond funds.

High yield bonds

High yield bonds can be issued by either governments or companies and are deemed higher risk. For example, there may be more risk of the government or company not being able to pay back their loans. To compensate for this higher risk, the yield on these bonds tends to be higher.

Income

The yield of a fund refers to the level of income it has paid over the past year and is expressed as a percentage. Some funds will target a specific level of yield, while others will not. It is important to remember that very few yields are fixed and therefore vary over time. The different types of fund which usually produce a meaningful level of yield are predominantly bond funds, equity income funds and property funds. When you select an income fund, you need to bear in mind that lower yielding funds (typically equity funds) may produce more capital growth (which in the long term could mean a growing yield), whilst those targeting a higher yield may do so at the expense of some capital growth. Browse all Elite Rated income funds.

Japan

Funds in this category will invest primarily in Japanese based investments. They may invest a little elsewhere in the world (they can invest up to 20% of the fund outside Japan), but most of the money stays in the local economy. However, they will vary widely in the size of companies in which they invest. For example, some are predominantly invested in larger companies, whilst others invest mainly in smaller companies. Some invest in companies of all sizes.

Multi-asset funds

When we talk about investments, we often talk about different asset classes. Asset classes are merely a way of categorising different types of investment. For example, bonds, equities and property are three different asset classes. Most funds invest in just one asset class, like equities, for example. Multi-asset funds are aptly named as they will invest in more than one asset class. The number of different assets they invest in can vary greatly, from two to many, so it is important to read the information about each fund carefully so you know exactly in which asset classes they invest. Funds of this ilk are usually classified by the amount they are allowed to hold in equities (to give an indication of the risk involved). The standard segmentation is 0-35% shares, 20-60% shares, 40-85% shares and those that can be completely flexible.

Property funds

Property funds come in many shapes and sizes. Some invest in residential property, like student accommodation or buy-to-let, while others invest in commercial property like shopping centres, sports complexes and ship yards. Both these types of fund invest in physical property – they own the buildings. It is important to remember that property is an illiquid asset class and these funds can come under pressure, or even be forced to suspend trading, in times of extreme selling, such as during the global financial crisis or following the UK's vote to leave the European Union in 2016. There are also some property funds which don't invest in physical property, but instead own shares in companies related to property. An example would be owning shares in a hotel group or self-storage company.

Responsible investing

Responsible investing covers a number of areas including, but not exclusive to, sustainable, socially conscious, environmentally responsible or ethical businesses. Funds in this category may invest in any asset class and their level of ‘responsibility’ will vary. Some funds will use negative screens – avoiding certain investments. Some will have positive screens – looking for, and encouraging, good practice. Others will have a combination of both. Some will look instead to invest back into the region or asset class for the benefit of local people and business development.

Specialist

Some funds invest in a universe of companies that is not accommodated by the more mainstream sectors. Instead, as the name suggests, they will specialise in certain areas. For example, some funds will invest only in companies related to the healthcare sector, whilst others will specialise in technology investments. If you are looking for a very targeted investment, this category is a very good place to start. Browse all Elite Rated specialist funds.

Strategic bond

Strategic bond funds are the most flexible type of bond fund. They can invest in any type of bond – government, investment grade, high yield and emerging market, as well as other fixed interest investments. The fund manager will be able to increase or decrease their exposure to certain types of bond, depending on the economic and investment environment, and their view as to which is currently a more attractive investment. These funds also tend to have more investment tools at their disposal, which can, for example, help protect the fund from rising interest rates.

UK

Funds in this category will invest primarily in UK-based investments. They may invest a little elsewhere in the world (they can invest up to 20% of the fund outside the UK), but most of the money stays in the local economy. However, they will vary widely in the size of companies in which they invest. For example, some are predominantly invested in larger companies, whilst others invest mainly in smaller companies. Some invest in companies of all sizes.

US

Funds in this category will invest primarily in North American based investments – sometimes, but not always, including Canadian investments. They may invest a little elsewhere in the world (they can invest up to 20% of the fund outside North America), but most of the money stays in the local economy. However, they will vary widely in the size of companies in which they invest. For example, some are predominantly invested in larger companies, whilst others invest mainly in smaller companies. Some invest in companies of all sizes.

Where to next?

©2016 FundCalibre Ltd. All Rights Reserved. The information, data, analyses, and opinions contained herein (1) include the proprietary information of FundCalibre, (2) may not be copied or redistributed without prior permission, (3) do not constitute investment advice offered by FundCalibre, (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete, or accurate. FundCalibre, shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses, or opinions or their use.