Equity Funds

WHAT IS AN EQUITY?

An equity, sometimes known as “shares” or “stocks,” allows investors to exchange their cash for a small piece of a company. If investors think a company is going to grow in value its share price will go up. If, however, investors believe a company’s business prospects are poor or it is too expensive, the share price is likely to fall in value and people who own those shares may lose money.

As a simple example, if you own shares in Apple, you own a little piece of Apple’s business. Imagine Apple launches a new widget and everybody wants to own it. That could lead to higher profits for Apple, which is good for business. Demand for Apple shares is also likely to increase and its share price will go up. If, however, the new widget proves to be unpopular or a rival launches a better widget than Apple’s, its share price could fall.

Shares can be bought or sold on stock markets around the world, such as the London Stock Exchange.

WHY INVEST IN AN EQUITY FUND VERSUS INDIVIDUAL SHARES?

Buying shares in just one company can be quite risky as your investment is tied specifically to the fortunes of that company. Many investors therefore choose to invest in a Fund.

Pooling your money with other investors in an equity fund offers three distinct advantages over buying individual shares:

Diversification

Put simply, don’t put all your eggs in one basket. If you own shares in just one company and its price goes down, you have nothing to offset it with. But an equity fund holds shares in many companies, helping spread the risk in case one or a few shares- fall in value.

Professional Management

Equity funds are generally managed by experienced, investment professionals who have the time and resources to analyse companies in detail and constantly assess whether they are a good investment. By investing in equity funds, you benefit from their expertise.

Cost

Most investors can’t afford the time or money required to research and invest in the shares of multiple companies. By pooling your money with other investors the cost is spread across many investors and will generally be cheaper than owning, buying and selling the shares individually.

IS INVESTING IN AN EQUITY FUND RIGHT FOR YOU?

Investing in equity funds may be an attractive option because they offer the potential for your money to grow in value over time, typically by more than the interest you might receive in a regular bank account. However, if you need access to your money quickly, don’t want to pay a professional to manage your investments or are not willing to risk losing money, then an equity fund may not be suitable for you.

The world’s stock markets constantly change in value and you can see the highs and lows over the last 15 years below. Of the past 15 years, 2016 had the highest returns, at 29.40% while in 2008, during the financial crash, there was a drop of 19.48%.

If you were investing for a longer period, say over the full 15 years, perhaps for a pension or as a nest egg for your children, an investment in global stock markets over that period, on average, grew by 298.58%. You should remember that past performance is not a guide to future performance.

MSCI ACWI GR GBP Calendar Year Returns1

1. Source: Macrobond as of 31/12/2019

TYPES OF EQUITY FUNDS

Equity funds come in many varieties.

Actively- Managed Funds

You may want a fund where a professional fund manager or team uses their skill, research, experience and judgment to pick and choose the shares of companies that are likely to outperform a particular financial market or Index over time. That’s called Active Management. If the manager selects good companies the Fund has the potential to outperform the financial market and provide value for money for investors. Typically, an active fund manager will aim to invest in the best performing companies, taking the lowest level of risk to achieve their goal. These “actively” managed funds where a manager takes an “active” decision whether to buy or sell shares typically charge a fee for this management. The amount of fee they charge for this service often depends on how complex it is to research and invest in the specific type of company shares. For example, there is a lot more information available about big companies in financial markets like the US and UK, than in smaller companies. Quite often the fee for investment management forms part of the Ongoing Charges Fee for a fund and is usually somewhere between 55p to £1.00 for every £100 you invest.

Passive Funds

If you invest in a passive fund, the fund manager does not decide whether a company is a good or bad investment. Instead a passive fund will normally be invested in exactly the same companies and in the same proportion as the financial markets they are designed to replicate. Given there is no need to pay for an expert to manage a passive fund they tend to be cheaper than active funds. They are designed to mirror a financial market’s or index’s performance rather than beat it.

Global, Regional, Single Country or Investment Themes?

You may want to invest in a mix of companies from across the world or favour specific countries such as the UK or regions such as Europe or Asia. Or perhaps you want to focus on a certain industry, such as technology, or a specific investment theme such as climate change.

Depending on the type of equity fund you decide to invest in you can typically find one to suit your needs.

What Equity Funds Does Franklin Templeton offer?

Franklin Templeton offers a full range of equity funds. Some that we speak about often include:

How Do You Buy Equity Funds?

A financial adviser can help you to choose and buy funds that are most suited to your needs and investment goals.

If you do not want help to choose your investments you can invest directly with the manager of the fund you want to invest in, such as Franklin Templeton, or you can buy funds through online Fund Supermarkets or fund platforms.

Most fund platforms offer a simple and easy way to buy and sell funds from different managers and see your investments in one place. They often also have helpful guides and “best buy” lists to help you make decisions. You can also choose to invest in tax efficient investments like ISAs and pensions through most platforms.

Some of the larger platforms include organisations such as Hargreaves Lansdown, Fidelity, Interactive Investor, Charles Stanley and AJ Bell.

There are also several organisations that offer objective comparisons and consumer reviews on the cost and services offered by platforms and providers such as Boring Money, Money Saving Expert and Which?.

Please do remember this is not a full list of fund platforms or comparator sites, nor is it a recommendation to use them, it is purely examples of organisations that offer these services.