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What is an Asset Class and What are The Different Types?

Different types of investment fall into categories known as asset classes, which group investments according to their common characteristics.

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise.
There are three main asset classes, known as equities, bonds and cash. Categories outside of these are known as alternative asset classes and include, for example, real estate, commodities and private equity.

When you invest, you will put your money into one or more of these asset classes. The choice of asset categories is a key decision for investors because they carry very different levels of potential risk and return. Stipulating a fund’s asset investment is a key part of explaining to investors where it will be invested and how it will generate returns. Equities and bonds are higher risk assets than cash but they also offer the potential for much higher returns.


What are the different asset classes?

Equities: an equity is a share in a company and it gives the holder the right to a portion of its profits. Equities can be the most volatile of the asset classes but they can also deliver some of the strongest returns if they are held for a sufficient length of time. Bonds: These are IOUs issued by governments and companies, with the promise to pay interest (the coupon) and return the loan value at the end of a set term, or maturity. The amount of interest payable will depend on how creditworthy the borrower is.

Cash: This normally refers to bank and building society accounts although there are also ‘cash’ funds that loan investors’ money on the open market.

Real estate: Owning your home is an investment in real estate but commercial properties also offer investment opportunities. Because of the large sums involved, these are usually accessed via a fund that pools investors’ resources and which have a professional manager who constructs a portfolio of assets.

Commodities: Physical commodities include oil, precious and base metals and soft agricultural products such as coffee, cocoa and wheat. There are specialist funds that invest in this asset class by using derivatives that track their prices.

Private equity: This is investment in private companies, i.e. those that are not listed on public stock markets. Such companies are often smaller and have yet to be floated on the stock exchange, although large public companies are sometimes de-listed and taken private. Some investors will own private companies but they can also invest in this asset class via specialist funds.
Understand common financial words and terms See our glossary

How to invest in Liontrust funds

Through a fund platform
Through a financial adviser
Direct with Liontrust