There are diversified mutual funds that offer various styles of investing; some of them are growth-style funds, value-style funds; some follow both styles while a few follow a completely different style of investing. One style of investment has been lesser known by most of the investors that offer wealth-creating opportunities. This style or type of fund is known as opportunity funds.
These lesser-known opportunity funds are highly beneficial as the fund manager is on a constant lookout for sectors that can benefit due to changes in the environment that facilitates the opportunity funds. In this specific kind of fund, the fund manager finds an opportunity arising out of changes in Government policies, industry-specific regulations, trade agreements, and several other factors to diversify market capitalization.
The market is full of diversified equity schemes, and there are various schemes that follow market capitalization, such as mid-cap or large-cap funds. Unlike such schemes, Opportunity funds do not rely on or show a market capitalization bias; they invest across multiple market-capitalization based on the opportunities and have a flexible approach.
Considering a scheme invests only in large market capitalization, it would be wrong to expect only high returns and find less volatility in the market. Instead, there is always a risk factor and the market as usual dynamic. In such a case, the fund manager, based on the opportunities in the market, can alter the portfolio, which can result in a major setback for the investors. The wise choice would be to diversify in multiple investments based on the flexibility of the opportunity funds.
The market is always dynamic, and opportunity funds ensure flexibility by investing in sectors of the bigger market space that are going to outperform in the following time. How do the opportunity funds know such sectors? It is based on microeconomic and macroeconomic changes in several fields such as the government, environmental, or other changes that directly or indirectly affect the funds. The investment is also over the short-medium term to ensure maximum profitability before the next change.
Most of the investments that are for the short-medium term are risky, but they do give high returns. The market dynamic and in such a case, betting a lot of money on investments that are high risk can cost a lot to the investor. It is easy to find opportunities, but there is a good amount of risk.
Opportunity funds are highly uncertain as the market is dynamic and volatile; it becomes difficult to ensure the returns when the risk is higher. Besides, everything boils down to calculated risk, including the factors that are creating the opportunity and determining high returns though the opportunities may or may not last long.
To make the portfolio stand out, a lot of backend process is done by the fund manager, but in the end, determining what is right and wrong in the portfolio can help the fund manager to add value and reduce uncertainties in it. With the opportunity funds lasting for the short-medium term and returning high profits, they can be used to pay off the investments that did not get any results. Once that is done, the next step is to use the returns from the opportunity and start a new calculated investment to get maximum returns. This process repeats, and the wrong investments can be removed from the portfolio by paying off the investments that did not result in profitability and on the other hand, the right thing of investing in schemes that are already achieving higher profitability can help in diversifying the portfolio and standing it out among others.
The fund manager experience also plays an important role in opportunity funds. It is important that fund managers have a sound knowledge and understanding of how the businesses work with each sector. The crucial part is the judgment, where the fund manager has to make decisions based on the understanding of how the market, government policies, environmental change, and other changes will directly or indirectly affect a certain investment. It is difficult to make this decision as it is completely based on the calculations, approximations, and guessing as opportunity funds are not certain and are highly dynamic. Micro and macro changes can create a broader difference in the judgment, and it is so difficult that sometimes the Ace players fall to wrong judgment.
Opportunity funds are risky but yield higher returns when played smart. The fund manager finds an opportunity out of changes in Government policies, industry-specific regulations, trade agreements, and several other factors to diversify market capitalization. One should invest in opportunity funds as they give extra returns with the added risk of market volatility in short-term investments. Besides, there is a need for a sound knowledge of how the market works and how to make a judgment based on a quick opportunity.
It is a diversified equity mutual fund whose fund manager is on a constant lookout for investment opportunities.
Opportunity funds are based on stock-specific, sector-specific, industry-specific, thematic, government policies, environmental changes, and more.
Opportunity funds can be opted by filling form 8996, and this fund must hold at least 90% of its assets in Qualified Opportunity Zone properties.
Qualified opportunity funds can be found at the National Council of State Housing Agencies (NCSHA) Opportunity Zone Fund Directory; it filters the funds by investment focus, fund size, or geographic focus.
Opportunity funds do not rely on or show a market capitalization bias; they invest across multiple market-capitalization based on the opportunities and have a flexible approach.