Retail mutual funds are publicly traded funds offered by investment firms such as Vanguard, Fidelity, T. Rowe Price and American Funds. The mutual funds buy shares in individual companies based on the fund’s investment philosophy. What makes these funds “retail” is the ability for anyone to buy shares in them. Retail funds are registered with the Securities and Exchange Commission and publish prospectuses for investors to see what types of investments the funds can hold and to examine their fee structures.
Types of Retail Funds
Retail mutual funds can have a variety of investment styles. Each fund has an objective that determines what types of shares it will buy based on assets, regions and size or types of companies. The most common styles are large cap, mid-cap, small cap, bond, international, global, balanced and specialty. The “caps” refer to market capitalization or the total value of a company's stock. Large caps will usually have a value over $10 billion today. Apple, Exxon Mobil, PetroChina, Microsoft and IBM are large-cap leaders in market value. Small caps are firms usually worth less than $250 million. Bond funds invest in corporate, government or other types of bonds. International funds invest outside the U.S., whereas global funds invest worldwide and might hold U.S. companies. Balanced funds are hybrids and hold mixed investment styles, such as 60 percent large cap and 40 percent bond. Specialty funds target particular industries, such as technology or energy, or regions of the world.
Growth Versus Value Funds
Within most asset classes, there is also a split into styles subcategories: growth, value or blend. This reflects the types of company stocks chosen to be in the mutual fund, such as Vanguard U.S. Growth Fund, which invests in large-cap growth stocks, or Artisan Mid-Cap Value Fund, which invests in mid-cap value stocks. Growth stocks are typically growing faster than others in their industry in either earning or revenues. Growth stock firms tend to reinvest any cash and not pay dividends. Value stocks are under-valued firms whose stock price is at or near a 52-week low. They often pay high dividends. Mutual funds in the blend subcategory are a hybrid of the two, but check the prospectus to see what the split may be at any given time.
Some retail mutual funds are labeled by the approach used to manage the holdings. These types include passively and actively managed funds. The most popular passively managed funds are index funds, which match or track an entire market index like the Russell 2000 (small companies). The mutual fund is invested in all firms within the index. With less trading and effort, index funds generally have the lowest fees. Actively managed funds use detailed research to pick stocks and try to beat the market average. Their return depends on the manager’s abilities, and they have higher fees overall. A newer type of active management category is called tactical asset allocation. Tactical funds don’t limit their investments to a particular asset class or subcategory; their managers invest in whatever asset classes they feel will produce the best returns and then switch again as they see fit.
You may see funds with the same name but different stock ticker symbols. This typically reflects different share classes on the same fund. This is how companies differentiate various versions of the same fund. Instead of offering two funds with identical holdings, they create different share classes for the same mutual fund with different minimum investment requirements and different fee structures. For example, a retail mutual fund may have one version with a $3,000 minimum investment and a version with a $1 million minimum investment. Funds that offer multiple classes may describe them all in a single prospectus or separate them.
Dyanne Weiss has more than 20 years experience in human resources and corporate communications. Her communications strategies' have aided employee engagement and understanding of health care benefits, retirement planning, performance planning and compensation. Weiss has also worked in several industries: energy, insurance, banking, financial planning and health care. She has an MBA in management and organizational behavior.