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What is an equity fund?

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

Equity funds are investment vehicles that provide individuals with the opportunity to participate in the stock market and gain exposure to a diversified portfolio of stocks. In this article, we discuss what they are, how they work and the different variations.

What are equities?

Equities, commonly known as stocks or shares, represent ownership stakes in a company. When investors buy shares in a company, they become partial owners and have a claim on the company's assets and earnings. Equities are typically listed on stock exchanges, where they can be bought and sold.

What is an equity fund?

An equity fund is a collective investment vehicle that pools money from multiple investors to invest primarily in stocks. Fund managers manage the fund's portfolio, selecting stocks based on the fund's investment objectives and strategies. Equity funds offer investors the advantage of diversification, as they hold a variety of stocks across different sectors, geographies and market capitalisation.

How do equity funds work?

Equity funds work by pooling investors' money and investing it in a diversified portfolio of stocks. The portfolio manager makes investment decisions on behalf of the investors, aiming to generate returns and achieve the fund's objectives. Investors can purchase units or shares of the equity fund, and the value of their investment fluctuates based on the performance of the underlying stocks.

Types of equity funds:

There are various types of equity funds tailored to different investment preferences. Some common types include:

  • Growth equity funds: These funds focus on investing in stocks of companies with high growth potential.
  • Value equity funds: Value funds seek to invest in stocks that are considered undervalued in the market.
  • Sector-specific equity funds: These funds concentrate their investments in specific sectors, such as technology, real estate and energy.
  • Index equity funds: Index funds aim to replicate the performance of a specific stock market indices, such as the S&P 500 or FTSE 250.

Impacting equity fund prices:

The prices of equity funds are influenced by various factors, including:

  • Stock market performance: Equity funds are affected by overall stock market trends and investor sentiment. Learn more about stocks and shares here.
  • Economic conditions: Economic indicators, such as GDP growth, inflation, and interest rates can impact equity fund prices.
  • Company performance: The financial performance and prospects of the companies in the fund's portfolio can impact its value.

Benefits of investing in an equity fund

Investing in equity funds offers several advantages, including:

  • Diversification: Equity funds provide exposure to a broad range of stocks, thus reducing the risk associated with investing in individual stocks. Find out more about Diversification here.
  • Professional management: Fund managers possess expertise and conduct in-depth research and due diligence to make informed investment decisions on behalf of investors.
  • Liquidity: Equity funds are generally liquid, allowing investors to buy or sell their shares on most business days.

Is an equity fund a good investment? 

The suitability of an equity fund as an investment depends on various factors, such as an individual's risk tolerance, investment goals, and time horizon. While equity funds offer the potential for higher returns, they also carry inherent risks, including market volatility.

Liontrust offers a large range of equity funds, providing a variety of solutions to meet investors’ objectives.

They are managed by different teams, each with their own distinct investment processes, but they are all actively managed funds based on high conviction approaches.

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