A rose by any other name would smell as sweet. That old adage was written by William Shakespeare. But the meaning of the phra⛦se—that things are what they are regardless of what you name them—can generally be applied to the investment world.

Most mutual fund names are simple and fairly easy to understand. For example, many investors recognize that most mutual funds with 澳洲幸运5官方开奖结果体彩网:small-cap value in t🥃heir title invest in smaller companies that fund managers believe to be inexpensive.

For the most part, the standard fund names that describe an investment style, like small-cap value and 澳洲幸运5官方开奖结果体彩网:large-cap growth, accurately describe a fu🌳nd's investment s♒trategy. It's the more generic or vague names that can be much more confusing for the average investor. Read on to find out why.

Equity Income vs. Growth and Income

You may be wondering: What's the difference between 澳洲幸运5官方开奖结果体彩网:equity income or 澳洲幸运5官方开奖结果体彩网:growth and income? Not much, at least when it comes to the implication of the fund name. Equity-income funds invest mainly (but not exclusively) in large-cap stocks that pay high 澳洲幸运5官方开奖结果体彩网:dividends. This is often coupled with some sort of 澳洲幸运5官方开奖结果体彩网:fixed-income asset exposure. These typeꦕs of fu🦩nds tend to be more value-oriented.

Growth and income funds are not far off. These types of funds also aim to provide both growth and income by investing in companies that are poised for earnings growth and also pay some dividends. Growth and income funds tend to be more of a blend and sometimes more geared toward growth as opposed to value.

A simple screen in the 澳洲幸运5官方开奖结果体彩网:Morningstar database would serve as fair evidence. Using the Morningstar 澳洲幸运5官方开奖结果体彩网:style box as a filter,ꦫ Figure 1 shows how these funds are mapped out within the style box.

Investors who want both current income and moderate 澳洲幸运5官方开奖结果体彩网:capital appreciation, such🐓 as retirees, would be well suited to owning either type of fund♛.

Source: Morningstar

Large-Cap vs. Small-Cap Investing

Some mutual fund names are not very detailed, so screening for funds based merely on their investing style does not always reveal the fund's exposure to 澳洲幸运5官方开奖结果体彩网:market capitalization. For examp✅le, growth funds or value funds can invest in l🦋arge or small companies.

Let's take a look at Figure 2 as a case study. By taking a deeper look at the fund's underlying portfolio, we find that the fund's market cap exposure is skewed.

American Funds Growth Fund of America (AGTHX)

Fidelity Value Fund (FDVLX)

If we look at the fund information for FDVLX, we find that its value orientation is evident across a wide size spectrum, as follows:

Economic models suggest that your exposure to company size and choice of value versus growth orientations are key factors in determining expected portfolio return. So, if you believe this theory to be tru✅e, you may want to take calculated positions in funds that give you precise size and style exposures.

The Role of the Mutual Fund Prospectus

The sponsor or fund company must provide you with a document called the 澳洲幸运5官方开奖结果体彩网:prospectus whenever you purchase shares in a mutual fund or 澳洲幸运5官方开奖结果体彩网:exchange-traded fund (ETF). The prospectus is the fund's prim﷽ary selling document and includes important information, including:

• Date of issue
• The fund's 澳洲幸运5官方开奖结果体彩网:investment objectives or goals
• Principal strategies for achieving those goals
• Management team
• Risks of investing in the fund
• Fees and expenses
• Past performance

The prospectus document can be daunting in terms of the amount of information it contains, but it should be part of your pre-purchase 澳洲幸运5官方开奖结果体彩网:due diligence. As, such, you should take the time to go through and read it thoroughly. Unfortunatel🅺y, many investors often ignore the prospectus complete🔥ly. They skip the process entirely and invest in the fund anyway.

Many opt instead for reading the fund's one- or two-page fact sheet, which should not be confused with the prospectus. 澳洲幸运5官方开奖结果体彩网:Fact sheets are usually updated on a monthly basis and serve merely as a guide or summary. They usually contain information about the fund's allocation and provide an abb♏reviated list of assets, recent performance, and expenses. They are not intended to provide the scope or the depth of a prospectus.

The Importance of Fund Names

The SEC introduced Rule 35d-1 in 2001 to regulate the mutual fund industry's use of fund names. The rule was adopted under the Investment Company Act of 1940 and requires companies to invest a minimum of 80% of their assets in the investment type suggested by their names. According to the rule, a fund that has the word energy in its 🙈name should invest at least 80% of its assets in energy-related investments.

But just how important are fund names? Experts suggest that mutual fund names often provide investors with a window into their 澳洲幸运5官方开奖结果体彩网:investment strategies. A study published by European scholars in 2020 examined 2,152 equity funds in the United States between 2010 and 2018.

It found that about 33% of the funds analyzed had an inaccurate name at some point in their lifetime. These inaccuracies generally pertained to the fund size (small or large) and the fund's investment strategy (growth and value)—the latter being the most prominent.

The scholars found that inaccurately named f🧔unds not only mislead investors but the꧙y found that these funds:

• Are older
• Come with higher 澳洲幸运5官方开奖结果体彩网:expense ratios
• End up with lower fund inflows
  

The Bottom Line

Much like buying a car, investors should really consider looking under the hood before committing their cash to a specific mutual fund. A mutual fund's name does not always reflect a true picture of the investment. Investors should consider screening the funds not by name, but by asset type and size classifications. They should also evaluate how that fund fits into their overall 澳洲幸运5官方开奖结果体彩网:asset allocation plan. Looking beyond fund names to examine actual portfolio holdings is much easier than you think, with the help of investment-tracking services available on the web. In shorꦗt, before you buy, find out what you are actually getting.