100% equities strategy is a strategy commonly used by pooled funds, such as a mutual fund, that allocates all investible cash to stocks only. Only equity securities are eligible for an investment, be it listed shares, OTC shares or private equity shares.
Look at a glance
A 100% equity strategy only involves long positions in stocks. Such a strategy is common with mutual funds that invest all investible cash in stocks only and avoid riskier instruments like derivatives or riskier strategies like short selling.
With 100% equity strategies, the style of a portfolio can be further broken down into capital appreciation, aggressive growth, growth, value, the capitalization, and the income, among other things.
Realizing a 100% Equities Strategy
100% equity strategies represent portfolios that only select investments from the equity universe (i.e., stocks). 100% equity strategies dominate the market and encompass a large part of the offerings.
In practice, many 100% equity strategies have an investment objective or a mandate to invest at least 80% in stocks. 80 percent threshold is a formality used in the admission or registration documents for most equity funds in the market, with many funds investing between 90% and 100% in stocks.
100% equity means that there will be no bonds or other asset classes. In addition, it means that the portfolio does not use related products such as equity derivatives or riskier strategies such as short selling or the margin buying. Instead, 100% stocks imply more focused and traditional approach to the stock investing.
Stocks are generally considered to be a riskier asset class versus alternatives like bonds, money market funds and cash.
A well-diversified portfolio of all stocks can hedge individual corporate risks or even sector risks, but market risks remain which can affect the asset class of the stocks. Therefore, both the systemic and idiosyncratic risk is important considerations for aggressive stock investors. As a result, most financial advisors recommend a portfolio that contains both equity and fixed income components (bonds).
100% Equities Strategy Types
The 100% equity strategy category offers an investor a wide range of subclasses to choose from, including those that focus on one (or a combination of) labels such as capital appreciation, aggressive growth, growth, value, and the income. Here, below are some of the qualities that investors can expect from some of the more effective and popular 100% equity strategies.
Growth investing is a style used by many aggressive equity investors who are comfortable with riskier assets and trying to take advantage of growing companies. The Russell 3000 Growth Index is a broad market index that helps to reflect the growth category.
Growth companies offer emerging technologies, new innovations, or a significant industry advantage that gives them above-average expectations for revenue and profit growth.
Value stocks are often referred to as the long-term core holdings of an investor’s portfolio. These equity funds use fundamental analysis to identify stocks that are undervalued relative to their fundamental value.
Investment metrics for value investing often include price-to-earnings ratio, price-to-book, and free cash flow.
Income investing is also a prime category for long-term core positions in a portfolio. Income funds invest in stocks with an emphasis on current income. Returns on equity investments are primarily focused on mature companies that pay stable dividend rates.
Within the income category, Real Estate Investment Trusts and Major Limited Partnerships are two classes of publicly traded stocks with unique constitution structures that require them to pay high returns to equity investors.
Capitalization is a popular investment strategy for any equity portfolio. In general, capitalization is divided into large, medium and small caps.
Large-cap companies may offer the lowest volatility because they have established companies and stable dividend-paying earnings. Small-cap companies, on the other hand, are generally considered to be the riskiest, as they are usually in the early stages of their development.