An equity fund is a type of mutual fund or private investment fund, such as a hedge fund, that buys ownership in businesses (hence the term "equity") most often in the form of publicly traded common stock. Other times, the ownership is the form of so-called private equity, which is when the equity fund invests in privately held companies that aren't traded on the stock market.
Equity Funds Focused on Investing Style
- Private Equity Funds are those that invest in privately held companies that don't trade on the stock market. They may setup a limited liability company, infuse millions, or even billions, of dollars into it, raise money by issuing bonds, and then acquire businesses management believes it can improve.
- Equity Income Funds are those that invest in ownership of businesses that pay a significant dividend, often measured by a history of dividend increases, absolute and relative dividend yield, and conservative dividend coverage ratios.
- Dividend Growth Funds are those that invest in ownership of businesses with a record of increasing dividends per share at a much faster rate than the stock market as a whole. There are many different ways to make money with a dividend growth strategy, they sometimes beat their higher-yielding counterparts, and, in many cases, can make wonderful buy-and-hold investments.
- Index Equity Funds are those that mimic an index such as the Dow Jones Industrial Average or the S&P 500. Though not always true, index equity funds tend to have some of the lowest mutual fund expense ratios.
- Sector or Industry Specific Equity Funds are those that track specific areas of the economy, such as industries or sectors; e.g., discount retailers or property and casualty insurance groups. This can be appealing for those who want to invest their money in certain types of businesses, which may not be a bad idea given that certain industries have disproportionately produced high returns for owners.