Fund Category

A fund category is a way of differentiating mutual funds according to their investment objectives and principal investment features. This categorization allows investors to spread their money around in a mix of funds with a variety of risk and return characteristics.

Fund categories can be structured in various ways depending on the investment objective of a fund. Individual and professional investors can use different variations of fund categories when building out portfolios.

Professionally managed fund of funds are a leading example of how portfolio managers can build a portfolio of funds using different fund categories. Investors will often find the use of fund of funds structuring in asset allocation or balanced mutual fund portfolios. These portfolios seek to use funds from different fund categories in order to achieve their targeted asset allocation objective.

The Pacific Funds Portfolio Optimization Growth Fund provides one example. This fund aggressively allocates to growth stocks but also holds a portion of the portfolio in debt securities. Its asset allocation strategy plans for 70% to 85% of the portfolio in equity with 15% to 30% in debt. Holdings in the portfolio are represented by funds in different fund categories. Its top equity allocation is the Pacific Funds Large-Cap Value Fund. Its top debt allocation is the Pacific Funds Managed Bond Fund. In 2017, the Fund reported a return of 16.34%.

Retail investors can choose funds for their portfolios using a variety of investment styles and balancing objectives. To build a comprehensive portfolio of mutual funds, investors may first create an investment profile detailing their investing interests, objectives, risk tolerances and goals. Often this can be done through a wrap account, however, investors can also individually determine their investment profile for a do-it-yourself investing strategy.

Across the investment universe, investors have a range of options by fund category. Standard investment options will be focused on targeted asset allocations such as stocks and bonds. Managed objective categories are also prevalent in the market and are built from various investing styles and blends, which allows investors to invest by a well-known market segment objective. Managed objective funds can include strategies based on growth, value, income, asset allocation blend and more.

Targeted Asset Fund Categories

In the investment universe, investors may choose to invest by asset category. This type of strategy can allow an investor to build a portfolio of funds purely defined by their targeted asset holdings. This would include stock funds, bond funds and any other type of fund that is primarily invested purely in an individual asset class. With stock funds, the basic categories can be defined by the size of the companies in which the fund invests (large-cap, mid-cap and small-cap). Bond funds are categorized principally by their average portfolio maturities (long, intermediate and short) and credit quality (high, medium and low). Stock funds can be used for the more aggressive portions of a portfolio while bond funds are often used for more conservative allocations.

Managed Objective Fund Categories

A wide range of managed objective fund categories also exists. Outside of traditional stock and bond categories, these fund categories can have more specific objectives such as value, growth and income. Hybrid, or asset allocation, funds can also be considered to be managed objective funds. These fund categories allow an investor to meet broader or more specific investment goals as well as short-term and long-term objectives.

Hybrid fund categories can include conservative, moderate or aggressive growth funds with varying asset classes and allocations. Hybrid funds can also encompass target-date strategies that offer a diversified portfolio of investments across various asset allocations that shifts over time to meet the target date utilization goal for the investor.