Capital preservationIncomeGrowth

What is a capital growth strategy?

When building an investment portfolio that is reliant on capital growth, usually there is a higher risk, but also potential for a higher return on investment. One of the main objectives of a growth fund is capital appreciation. This means that the person purchasing the stocks is expecting the market value to increase above the original cost in the long-term, so they could potentially net a respectable profit when sold.

An average capital growth fund will allocate around 60-70% of the money to equities, depending on the investor’s goals and risk tolerance. The last indicator is the investor’s willingness to sustain a loss in the short-term, in order to potentially gain later on. The remainder of the money will usually be invested in fixed-income securities, as well as money market securities, helping to balance risk in the portfolio. Aggressive growth equity funds will go as far as investing all of the funds in capital growth stocks, with the result either being above average gain or significant losses. 

Investment objectives of capital growth

When choosing capital growth solutions, it is important to make sure this strategy coincides with your goals. For instance, capital preservation vs growth is a more conservative approach, with the main goal of simply avoiding loss and keeping up with inflation. 

Another example is an income fund vs growth fund, where the first one will provide you with a monthly income through dividends, and is potentially more secure, while the latter could take longer to yield results.

When should you build a portfolio based on capital growth investments? 

As a rule, growth investment funds are suitable for investors looking to invest for a minimum of 10 years. The goal for such capital growth products could be saving for retirement or for future generations. Since capital growth shares may also incur substantial losses, it is important that investors understand the risk involved with such investments and have time to recoup any potential losses. 

AXA Investment Managers’ approach to capital growth

We combine active asset allocation and security selection with a risk-monitoring framework, aiming to achieve long-term returns. Examples of our diverse investment approach for capital appreciation and capital growth include:

●    Flexible global or European total return: we aim to capture part of the equity market’s upside, while mitigating downside risk by selective hedging and diversification across lower risk assets.

●    Long-term capital growth strategy: a multi-asset strategy that blends thematic, long-term oriented equity security selection with diversified fixed income and real assets.

●    Risk budgeting: we use proprietary mechanisms that dynamically and reactively adjust the portfolio’s exposure, according to market conditions, with the objective of reducing volatility and limiting maximum drawdown, while still benefiting from market opportunities.

●    Target maturity: broadly diversified capital growth strategies adapted to the age and risk profile of each investor in a transparent and flexible framework. As the target retirement date approaches, the strategy glides towards an allocation that aims to reduce portfolio risk, in order to mitigate against capital loss.

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