Selecting Opportunities Funds
The work of Dr. Benjamin Graham in analyzing businesses and estimating intrinsic value in order to identify mis-priced securities is performed by hundreds of professional investors. This approach, even though apparently consisting of a set of simple goals, is put into practice only by minority of fund's managers, namely opportunities fund's managers.
Often, it is considered to be a contrarian investment process. Opportunities Fund's managers look for a number of metrics that indicate that a particular asset is mis-priced. The traditional indicators that suggest a company is undervalued are, for example: low price-to-cash-flow ratio, low price-to-book-value ratio, low price-to-earnings ratio, or attractive dividend policy.
Because many companies will exhibit value characteristics at any point in time, traditional fundamental analysis is critical to distinguish a good investment from those that may be inexpensive for good reason.
The investment opportunity which can be categorized as non-financial asset might be often more difficult to spot and consequently evaluate as mis-priced. Cheap assets do not automatically qualify as good investment opportunities. An in-depth view of each potential investment can help to make this distinction.
Types of opportunity funds
There are many types of Opportunities Fund. The choice of the appropriate should be based on individuals level of the risk tolerance, required liquidity and return on investment, time horizon, as well as the fund's growth potential.
One type of basic classification of opportunities funds can be according to their specialization and geographical investment concentration.
As a result, the special opportunities funds might greatly differ in the total expense ratio and level of risks involved. These two factors depend on the investment objective and strategy, the amount of analysis on the investment opportunity required, frequency of trading, location of assets and the type of assets an opportunity fund invest in.
Depending on the type of investment, the opportunity funds share common risks, such as commodity, concentration, credit, currency, derivatives, equity, foreign investment, inflation, interest rate risk, short selling risk, etc.
Opportunities Fund general classification
Special Opportunities Funds
Special Opportunities Fund generally focuses on specific types of investment opportunities belonging to a particular industry sector or group of sectors. Each sector is influenced by a distinct set of industry, economic, and market factors, and, as a result, the investment approach applied by special opportunities funds might widely differ.
Location-specific Opportunities Funds
On the other hand, the opportunities funds might have similar investment approach and invest in similar assets but vary just in the geographical location of assets in its portfolios.
The special opportunities fund under this category could be classified as Global Opportunity Fund or European Opportunity Fund.