Thursday, December 23, 2010

Asset Class

An asset class is a grouping of investment products or securities that have similar characteristics. At a high level there are three broad asset classes: equities (stocks), fixed-income (bonds), and cash (term deposits, money market instruments). There are also broader distinctions e.g. income versus growth assets, where income assets would include fixed income and cash, while growth assets would include equities. Beyond the three high level asset classes people will often refer to a wider range, for example: commodities, currencies, real estate, etc. There are also often geographical distinctions made, for example: domestic equities, international equities, emerging markets equities (with the same categories applying to fixed income). There may also be distinctions within an asset class, for example, equities based on size: Large-cap equities, Mid-cap equities, Small-cap equities, Micro-cap equities. Each asset class has its own unique characteristics in terms of risk and reward profile, correlation or movement relative to other asset classes, and availability or accessibility for investors. Some fund managers will focus on investing within a single asset class, while others may incorporate all asset classes in some mix.

Synonyms: Asset type, Asset category, Asset allocation, Fund type, Investment category, Security characteristics

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