American Equity Fund

The American equity fund invests in equities which are more commonly called stocks. The majority of the fund may be made up with stocks, with the remainder consisting of bond funds and money funds. An American equity fund will buy stocks with the anticipation that the value will rise. As it does, there may be dividends and capital gains.

The dividend that is paid out is a fixed amount per share held. The amount received by the American equity fund is in proportion to the number of shares held, and assumes that the equity is not sold. Capital gain is the profit made from selling an equity that has increased in value and it is possible that tax may be payable on capital gains.

Most individuals will buy equities through an American equity fund. The reason for this is that the investors then gain the skill of the investment fund managers who are looking after the fund. Exceptions to this rule include large private investors and pension groups, as they may choose to hold the equities directly.

The US stock market is enormous, which makes investing in it successfully challenging. The American equity fund aims to minimize this risk to the individual investor by using a comprehensive screening system designed to gather information on promising companies whose stocks may be undervalued. After the company has been identified then a calculation is done to assess how the equity compares to a long term government bond. The result is the yield gap, or yield ratio. It shows the ratio comparison for the dividend yield on the equity, as opposed to that of the long term government bond. The American equity fund will balance the risk of investing in this equity across the fund.

The American equity fund may be divided into three groups. One is the basic value equities, where the stocks consist of companies that are financially sound, but whose stocks are trading lower than their true earning potential. The second group are the consistent earners, where the companies are showing steady earnings growth, but are valued at below their normal levels. The third group is the emerging franchises, and these are the ones that the American equity fund managers believe will grow faster than the average market rate. This is due to the fact that they may be launching a product or service that the fund managers think will become a market leader.

A well balanced portfolio will be diverse enough to cope with changing market conditions. This is not to say that profits are guaranteed, as the markets can be affected by economic, political and social conditions.