100% Equities Strategy

A 100% equities strategy is an investment strategy for an individual portfolio or pooled funds vehicle such as a mutual fund. Only equity securities are considered for investment, whether they be listed stocks, over-the-counter stocks, or private equity shares.

100% equities strategies represent funds that only choose investments from an equity universe. Generally very few funds would be able to deploy all capital in equity market investments without holding some cash and cash equivalents for transactions and operating activities. All equity strategies however are still very prevalent in the market and encompass a large majority of offerings.

Most all equity strategies will have an investment objective stating that the fund will invest at least 80% in equities. The 80% threshold is a commonality used in registration documentation for the majority of equity funds in the marketplace, with many funds deploying potentially 90% to 95% or 100% fully invested in equities. In the all equity category many investors will seek funds that do not integrate higher risk instruments such as derivatives and short selling for more focused traditional equity investment.

Equities are generally considered the riskier asset class over other leading alternatives such as bonds and cash. A well diversified portfolio of all stocks can protect against individual company risk or even sector risk, but market risks will still exist that can affect the equities asset class. Thus, both systemic and idiosyncratic risks are important considerations for aggressive equity investors.

In the all equity category an investor will find a wide range of sub-classes to choose from including capital appreciation, aggressive growth, growth, value, capitalization and income. Outlined below are some of the characteristics investors can expect from some of the most prominent all equity strategies.

Growth investing is a style used by many aggressive equity investors who are comfortable with higher risk investments and seek to take advantage of growing companies. The Russell 3000 Growth Index is a broad market index that helps to represent the growth category. Growth companies offer emerging technologies, new innovations or a significant sector advantage that gives them above average expectations for revenue and earnings growth.

Value stocks are often known as long term core holdings for an investor’s portfolio. These equity funds will rely on fundamental analysis to identify stocks that are undervalued in comparison to their fundamental value. Investment metrics for value investing often include price-to-earnings, price-to-book and free cash flow. (See also: Top 5 Value ETFs of 2018.)

Income investing is also a top category for core long term holdings in a portfolio. Income funds will invest in equities with a focus on current income. Income from equity investments is primarily focused on mature companies paying steady dividend rates. In the income category real estate investment trusts (REITs) and master limited partnerships (MLPs) are two publicly traded stock categories with unique incorporation structures that require them to pay high levels of income to equity investors. (See also: Top Four Dividend ETFs for 2018.)

Capitalization is a popular investing strategy for all equity portfolios. Generally, capitalization is broken down by large cap, mid cap and small cap. Large-cap companies can offer the lowest risks with established businesses and steady earnings that pay dividends. Small-cap companies are usually considered to have the highest risk since they are typically in the early stages of the business cycle. (See also: Top 4 Large-Cap ETFs for 2018 and Top 3 Small-Cap ETFs for 2018.)