Funds

Money market funds

Low risk investment

• Money market funds invest mainly into short-term bonds, whose prices are not sensitive to fluctuations in interest rates.
• The credit risk of the issuer (the risk that the borrower fails to fulfil its obligations in part or in full) is carefully observed in the selection of investments.
• Investments are usually made into bonds of very low risk (government securities, bonds of large and secure companies)

Rate of return equals that of term deposits

• Due to their conservative investment policies, the rate of return of money market funds equals that of term deposits. For example, the goal of the Swedbank Fixed Income Fund is to offer a better rate of return than the six-month term deposit of Swedbank and the aim of Swedbank Money Market Fund is to offer rate of return comparable to one month term deposit.
• The rate of return of money market funds may be lower than that of deposits during an increase in interest rates, because such a rise will cause the price of the bonds already contained in the portfolio to decrease. If the interest rates of deposits decrease, the rate of return of money market bonds will probably be better than that of term deposits.

Money is received quickly after sale of units

• Money is received on the account on the same or the next banking day after units of the Swedbank Money Market Fund are sold. This depends on the time when the sales transaction is entered.
• Money is received on the investor’s account on the first (if the sale occurs before 4 pm) or second banking day after units of the Swedbank Fixed Income Fund are sold.

Balanced funds

Rate of return depends on the portfolio

• The fund manager of a balanced fund may change the ratio of shares and bonds in the portfolio according to the events in stock markets. For example, if the fund manager expects share prices to drop, he or she can increase the share of bonds in the fund portfolio.
• When investing into a balanced fund, you must keep in mind that prices will fluctuate more than in a bond fund.
• Balanced funds have a more stable rate of return at the time when prices at stock markets are decreasing. However, when prices at stock markets increase, the rate of return of balanced funds will be smaller due to bond investments.

Swedbank Fund of Funds 30 invests 30% of its portfolio into equities and 70% into bonds; Swedbank Fund of Funds 60 places 60% into equities and 40% into bonds and Swedbank Fund of Funds 100 invests all assets of the fund into equities.

Bond funds

Spread risk

• Bond funds invest in several bonds. This way, the losses suffered by investors will not be big should the value of a single bond in the fund’s portfolio decrease.
• Bond funds are also excellent for balancing equity investments, because bond markets often move in the opposite direction to stock markets.

Different risk levels

• Funds that invest in bonds of developing markets are usually riskier than bond funds that invest in developed markets like USA or Germany.
• Funds that invest in so-called junk bonds are the riskiest whilst funds that invest in government bonds are the least risky.
• Long-term bonds are more sensitive to changes in interest rates and therefore also riskier.

Rate of return may be similar to stock markets

• The rate of return of lower risk bonds can be compared to the rate of return of term deposits.
• Bond funds that invest into developing markets or junk bonds can offer rates of return that are similar to those of stock markets.
• The higher the possible rate of return of a fund, the bigger the fluctuation of the possible purchase price of the fund and the possible difference from the historical average.

Equity funds

High risk investment

• Stock markets are sensitive to economic recessions and other negative news concerning companies and therefore equity funds have a high risk level.
• The risk level of US stock markets is relatively low when compared to markets in our region.

Good long-term return opportunity

• Equities offer a better return than bonds in the long term. Investments into equity funds should be made for at least five years – in such a case, the probability of losing money is very small.
• Historically, the stock markets have offered a better rate of return than bonds, but fluctuations in stock markets have been the largest, which means that the rate of return of equities is also hardest to predict.

Different regions and economic sectors

• Equity funds can be classified according to regions and economic sectors. For example, equity funds can invest both globally (T. Rowe Global Equity Fund) and solely into a certain region (Swedbank Eastern Europe Equity Fund). A fund may also focus on a certain economic sector in its investments (Swedbank Eastern Europe Real Estate Equity Fund or JPM Global Natural Resource Fund).

Actively investing funds or index funds

• Funds are often classified according to the style selected by the fund manager into actively investing funds or index funds.
• Index funds invest in equities contained in a stock exchange index (e.g. Standard & Poor’s 500 that is a benchmark for the performance of major companies in the US).
• Actively investing funds are also actively involved in analysis in order to select equities that have a higher growth potential than others.