WHAT KINDS OF INVESTMENTS ARE INCLUDED IN GROWTH
The managers of growth funds invest in the stocks of companies
that show the greatest potential for growth. They choose these because the
stocks of high-performing companies are in demand and are likely to increase in
choose stocks that they believe are selling for less than they are worth. These
managers believe that such stocks (called value stocks) will eventually
become popular and thus rise in value.
Other managers choose stocks by studying a company's profits and
predicting whether these profits will continue. Fund managers also look for
stocks they think will grow faster than the inflation rate. This makes growth
funds popular with investors who are looking for a hedge against inflation.
Growth funds may
also invest in small, rapidly growing companies called small-cap
companies ("cap" refers to capitalization, which is the amount of money
invested in the company. Small-cap firms have relatively small amounts of
Because less of the company's profits must go to repay investors,
mutual fund managers believe these companies are likely to earn substantial
profits in the near future. Mid-caps are also popular choices. Large-cap
companies are less popular because they grow less rapidly. Nevertheless, many
growth funds choose them because they perform well while being generally less
volatile than small- and mid-cap stocks.
Some examples of growth funds are next in our