A fully capitalized mutual fund invests in companies based on criteria other than market capitalization size, allowing for more flexibility in investment opportunities. It does not exhibit stereotypical behavior based on company size, making historical performance a primary indicator of future success.
A fully capitalized mutual fund is a fund that does not follow a capitalization investment style. Companies on the stock exchange are ranked by their size in terms of market capitalization. Many mutual funds are ranked by the market capitalization size of the companies in their portfolios. A large-cap fund, for example, invests in large-cap companies. A maximum-cap mutual fund invests in companies based on criteria other than market capitalization size.
Market capitalization is defined as the share price multiplied by the number of shares issued. For example, if XYZ Widgets has a stock price of $5 and 1,000,000 shares outstanding, then XYZ Widgets has a market capitalization of $5,000,000. Since the price of stocks fluctuates daily, a company’s market capitalization fluctuates as well, but typically falls within a specific range.
Each market capitalization range has some stereotypical earnings expectations and stock price behaviors. For example, a large-cap company will tend to have a fairly stable share price and fairly stable earnings. A small-cap company will have a fluctuating share price and unstable earnings, but a high growth rate. Mutual funds, by aligning themselves with the division along market capitalization lines, will exhibit stereotypical behavior of the companies in the portfolio. This helps investors by allowing them to align their investment objectives with the expected performance of the fund.
A fully-capitalization mutual fund does not offer this advantage. Their behavior cannot be characterized by the size of the companies in the portfolio, as there can be a wide range of company sizes. The performance of a maximum-cap mutual fund should be based primarily on a historical perspective. If a certain fully-cap mutual fund has done well in the past, hopefully it will continue to do well in the future. This, unfortunately, is not always true.
A fully-cap mutual fund has the advantage of being able to invest in any profitable opportunity it funds, regardless of the size of the company. You can also try combining the best of the splits based on size and get a better composite performance. For example, by holding a few large-cap stocks, a full-cap mutual fund may gain some of the price stability of a large-cap fund, while by investing in smaller companies, it may hopefully also realize the growth of this market division. A capitalization mutual fund is not necessarily split evenly among the market capitalization divisions. It is free to invest in the way you find most profitable regardless of the size of the company.
Smart Asset.
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