What is a capital growth strategy?
When building an investment portfolio that is reliant on capital growth, usually there is a higher risk, but also potential for a higher return on investment. One of the main objectives of a growth fund is capital appreciation. This means that the person purchasing the stocks is expecting the market value to increase above the original cost in the long-term, so they could potentially net a respectable profit when sold.
An average capital growth fund will allocate around 60-70% of the money to equities, depending on the investor’s goals and risk tolerance. The last indicator is the investor’s willingness to sustain a loss in the short-term, in order to potentially gain later on. The remainder of the money will usually be invested in fixed-income securities, as well as money market securities, helping to balance risk in the portfolio. Aggressive growth equity funds will go as far as investing all of the funds in capital growth stocks, with the result either being above average gain or significant losses.
Investment objectives of capital growth
When choosing capital growth solutions, it is important to make sure this strategy coincides with your goals and it is the best out of all of the options out there. For instance, capital preservation vs growth is a more conservative approach, with the main goal of simply avoiding loss and keeping up with inflation. Another example is an income fund vs growth fund, where the first one will provide you with a monthly income through dividends, and is more secure, while the second will take longer to yield results. So, what are the occasions when you should build a portfolio based on capital growth investments? As a rule, the growth investment funds are suitable for investors with a long-term plan of at least 10 years or more. The goal for such capital growth products could be saving for the retirement of for future generations. Since capital growth shares may also incur substantial losses, it is more recommended for younger people, who have time to recover from those losses. The closer people are to their retirement age, the more recommended it is to choose a more conservative route, which may combine capital growth and income.
Growth fund examples
As mentioned, a good growth fund will be divided between fixed-income securities to stocks with capital growth potential, to mitigate the risk. The latter will not provide quick returns but will be well worth the wait.
Such stocks can be found in companies with strong momentum and use every resource to push their product forward, dominating the market they are in.
They often do not pay any dividends, as they put all of their money into research and development. The technology or biology fields are good fields to locate organisations with potentially capital growth bonds. Two good examples will be Netflix and Amazon, who sacrifice profit in order to advance in the long run.
AXA Investment Managers’ approach to capital growth
When building a portfolio for capital and growth, we combine active asset allocation and security/instrument selection with a risk-monitoring framework, thus aiming to achieve long-term excess returns above specified performance indicators. Examples of our diverse investment approach for capital appreciation and capital growth include:
● Flexible global or European total return: We aim to capture part of the equity market’s upside, while mitigating downside risk by selective hedging and diversification across lower risk assets.
● Long-term capital growth strategy: a multi-asset strategy that blends thematic, long-term oriented equity security selection with diversified Fixed Income and Real Assets.
● Risk budgeting: we use proprietary mechanisms that dynamically and reactively adjust the portfolio’s exposure, according to market conditions, with the objective of reducing volatility and limiting maximum drawdown, while still benefiting from market opportunities.
● Target maturity: broadly diversified capital growth strategies adapted to the age and risk profile of each investor in a transparent and flexible framework. As the target retirement date approaches, the strategy glides towards an allocation that aims to reduce portfolio risk, in order to mitigate against capital loss.