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Funds

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.

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They invest mainly into short-term bonds, whose prices are not affected much by fluctuations in interest rates. Money market funds are suitable for investors who prefer to invest conservatively or for a short term.

Balanced funds

They invest into both bonds and equities, which is why they are between bond funds and equity funds in terms of risk and return. Balanced funds are suitable for investors who consider bond funds to be too conservative, but who do not want to invest all their money into higher risk equity funds.

Bond funds

They invest in corporate and government bonds, which are usually less risky than shares. Bond funds are suitable for conservative investors who wish to maintain the purchase power of their investments and also earn more than they could from money market funds.

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They invest in shares of companies and have the highest risk level of all funds. Equity funds are suitable for investors who wish to grow their capital as much as possible and who are prepared to keep their fund units even when the markets fall.

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