With $128 trillion in global assets, long-only equity funds remain a powerhouse, but are they right for you? Discover how these simple, growth-focused funds work, who should invest (and who shouldn’t), and why even passive investors are flocking to them.
Long-only equity funds continue to be a cornerstone of global investment strategies. As of 2024, global assets under management (AUM) reached approximately $128 trillion, with equity funds comprising a significant portion of this total.
Within the equity fund category, actively managed funds experienced net outflows of $100 billion, while passive funds attracted $1.6 trillion, highlighting a shift towards passive investment strategies. Despite this trend, long-only equity funds remain popular due to their straightforward investment approach, focusing solely on purchasing stocks with the expectation of capital appreciation over time.
These funds are particularly appealing to investors seeking simplicity, transparency, and long-term growth potential without the complexities of short-selling or derivatives.
How long-only equity funds work
A long-only equity fund invests in equities, or stocks, without taking short positions. Fund managers select companies based on various factors such as financial performance, industry outlook, and broader economic conditions. The strategy involves purchasing shares and holding them until their value rises, at which point the fund benefits from capital appreciation.
These funds can be actively managed, where fund managers choose individual stocks, or passively managed, where the fund tracks a specific index. Actively managed long-only funds often aim to outperform benchmark indices, while passive funds aim to replicate index returns.
The investment process typically involves:
- Stock selection: Identifying companies with strong growth potential or stable dividend payments.
- Portfolio construction: Diversifying across sectors, industries, or regions to manage risk.
- Monitoring and review: Regularly assessing portfolio companies and adjusting holdings as needed.
Read article: Long-Only Equity: Strategy, Benefits, and Risks Explained
Benefits of long-only equity funds
- Simplicity and Transparency: Investors understand what they own, as funds hold straightforward equity positions.
- Potential for Long-Term Growth: Equities have historically provided higher returns compared to other asset classes over extended periods.
- Diversification: Funds spread investments across multiple companies and sectors, reducing individual company risk.
- Liquidity: Shares held in long-only funds are generally easy to buy or sell, offering flexibility.
Who should invest in long-only equity funds?
Long-only equity funds are suitable for:
1. Retail investors
Long-only equity funds are a practical option for individual investors aiming to grow their wealth over time without engaging in complex investment techniques. These investors typically prefer straightforward strategies where fund managers select and manage shares on their behalf.
Since long-only funds focus solely on buying and holding equities expected to rise in value, retail investors can benefit from potential capital appreciation without needing to understand short-selling or derivative-based strategies.
These funds are especially suitable for people saving for future goals, such as children’s education or home purchases, who are willing to stay invested over the long term.
2. Institutional investors
Pension funds, insurance companies, and other institutional investors often include long-only equity funds in their portfolios. These institutions typically have long investment horizons, making them well-suited for strategies that prioritise long-term growth over short-term trading gains.
By investing in a diversified range of companies and sectors, institutional investors aim to generate stable returns that match their long-term obligations, such as paying out pensions or insurance claims.
Long-only funds provide a transparent, regulated structure with predictable investment approaches, fitting the investment policies of many large organisations.
3. Investors with moderate to high risk tolerance
Investing in equities involves a level of risk due to potential share price fluctuations and market downturns. Therefore, long-only equity funds are generally recommended for investors who can tolerate moderate to high levels of risk.
These investors understand that while markets can be volatile in the short term, equities historically deliver higher returns than fixed-income securities or cash over longer periods. Individuals who are comfortable experiencing temporary losses in pursuit of long-term growth are better suited to this type of investment.
Final thoughts
Long-only equity funds offer a straightforward method of investing in stock markets, relying solely on share price increases to generate returns. While the strategy lacks downside protection, its simplicity, transparency, and potential for long-term growth make it a popular choice for both individual and institutional investors.
Understanding how these funds work and assessing one’s risk tolerance and investment goals can help determine if long-only equity funds are a suitable option within a broader investment portfolio.
Himani Verma is a seasoned content writer and SEO expert, with experience in digital media. She has held various senior writing positions at enterprises like CloudTDMS (Synthetic Data Factory), Barrownz Group, and ATZA. Himani has also been Editorial Writer at Hindustan Time, a leading Indian English language news platform. She excels in content creation, proofreading, and editing, ensuring that every piece is polished and impactful. Her expertise in crafting SEO-friendly content for multiple verticals of businesses, including technology, healthcare, finance, sports, innovation, and more.
