Investment styles: growth vs value
The managers who make the investment decisions behind every mutual fund have different approaches to the types of investments they pick and the objectives they are trying to achieve.
The investment approach for each mutual fund is called an investment mandate. Along with outlining the types of companies the fund looks to invest in (e.g. small vs. large, industry sector, etc.) the mandate specifies the investment style, which is usually characterized as growth, value or a combination of the two. Before investing, refer to the fund’s simplified prospectus for a full description of the fund’s investment objectives.
What are growth mutual funds?
Growth funds look to invest in companies that are growing quickly in terms of their earnings and sales. Managers are willing to pay more for these types of equities, based on the potential for continued above-average growth.
But the trade-off is that these investments are more sensitive to market volatility – if the higher growth expectations are not met, these stocks may fall dramatically. So, while the rewards can be greater, the risk is also higher.
What are value mutual funds?
Managers of value funds look to uncover hidden potential. In other words, they invest in companies with stocks that they think are under-priced compared to actual earnings potential. The reward lies in the belief that eventually the rest of the market will catch on and the value will increase, while the risk is that the hidden potential will remain just that…hidden.
Is growth or value better for me?
In all likelihood, most investors would not have all growth or all value mutual funds. One of the keys to successful investing is to have a well-diversified investment mix. This helps you balance the risks associated with these different investment styles. An advisor is able to help you choose the right mix based on your level of risk tolerance, how long you have to invest and other factors that are unique to you.