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What is an All-Cap Mutual Fund?

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  • Written By: John Sunshine
  • Edited By: Niki Foster
  • Last Modified Date: 06 November 2016
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An all-cap mutual fund is a fund that does not follow a capitalization style of investing. Companies on the stock exchange are categorized by their size in terms of market capitalization. Many mutual funds are categorized by the market capitalization size of the companies in their portfolios. A large cap fund, for instance, invests in large cap companies. An all-cap mutual fund invests in companies based on criteria other than market capitalization size.

Market capitalization is defined as the price of the stock times the number of shares issued. For instance, if XYZ Widgets has a stock price of $5 and 1,000,000 shares outstanding, then XYZ Widgets has a market capitalization of $5,000,000. Since the price of the stock varies daily, a company's market capitalization also varies, but usually falls into a specific range.

Each range of market capitalization has some stereotypical expectations of earnings and stock price behaviors. For instance, a large cap company will tend to have a fairly stable stock price and fairly stable earnings. A small cap company will have a fluctuating stock price and unstable earnings, but a high growth rate. Mutual funds, by aligning themselves with the division along market capitalization lines, will exhibit the stereotypical behavior of the companies in the portfolio. This aids investors by allowing them to align their investment objectives to the expected behavior of the fund.

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An all-cap mutual fund does not offer this advantage. Its behavior cannot be characterized by the size of the companies in the portfolio, since there may be a wide range of company sizes. An all-cap mutual fund performance must be based primarily on historical perspective. If a certain all-cap mutual fund has done well in the past, hopefully it will continue to do well in the future. This, unfortunately, is not always true.

An all-cap mutual fund has the advantage of being able to invest in any profitable opportunity it funds, regardless of the size of the company. It can also try to combine the best of the divisions based on size and get a better composite return. For instance, by holding some large cap stocks, an all-cap mutual fund can gain some of the price stability of a large cap fund, while by investing in smaller companies, it can hopefully realize some of the growth of this market division as well. An all-cap mutual fund is not necessarily split evenly among the market capitalization divisions. It is free to invest in whatever way it deems most profitable without regard to the size of the company.

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