Common stock funds refer to mutual funds that invest only in shares of common stocks. Interestingly, with the growing popularity of exchange traded funds, investors may call certain ETFs common stock funds in casual conversation and the description fits. Regardless of the structure of the investment company -- a mutual fund or an ETF -- the underlying assets remain the same, shares of common stock. The fund's investment objectives define its particular characteristics. Common stock funds come in a variety of shapes and sizes.
Broad-based common stock funds own shares of stock from multiple companies across all industries and sectors of the market. For example, some broad-based mutual funds hold assets made up of stocks from literally thousands of publicly traded companies. Other broad-based common stock funds track a market benchmark such as the Russell 3000 Index and are called index funds because of this.
Index funds, popular among long-term investors, buy and hold shares of stock that mirror the makeup of a particular stock index. A standard market index used to create common stock funds is the S&P 500. However, many stock funds, structured both as mutual funds and ETFs, use indices with fewer companies and less diversity. For example, the Dow Jones Industrial Average, tracking 30 companies, is the market benchmark for the ETF called Diamonds.
Other Types of Funds
Some common stock funds have a specific focus or invest in only one region of the world. For example, there are common stock funds that invest solely in stocks of tech companies. You can find funds that hold assets of companies in emerging markets in Asia or other parts of the world, such as common stock funds that invest primarily in companies from one country. Others may buy and hold only value stocks or only growth stocks from around the world and are known as global funds.
Hundreds of commons stock funds with a mutual fund structure are run by fund managers who pick the underlying assets themselves. Each fund manager has different criteria for what appeals to him personally.
Common Stock ETFs
A growing number of exchange traded funds invest only in common stocks. Many of these funds tend to have a much more narrow focus. Some hold assets in one market sector, such as only technology stocks or only financials, or just energy companies. Whatever the focus and investment objectives of the ETF, the assets many own are the same type of securities -- common stocks.
- Investment Company Institute: How Mutual Funds and Investment Companies Operate
- "Kiplinger's Personal Finance"; One Stock Global Funds; Russel Kinnel; April 2011
- Morningstar: Dodge & Cox Global Stock Report (DODWX) Portfolio
- "Smart Money"; World's Greatest Investors; Dyan Machan and J. Alex Tarquinio; August 2011
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