What Is an All-Cap Fund?

An all-cap fund is a stock fund that invests in a broad universe of equity securities with no capitalization mandates or constraints.

The term "cap" is shorthand for market capitalization. The investment community measures a company's size by its market capitalization, which is calculated by multiplying the number of a company's outstanding shares by its current stock price. Companies are most often characterized as small-, medium- or large-cap.

Key Takeaways

  • An all-cap fund is a pooled investment that invests in a broad range of stocks regardless of company size.
  • Stocks are characterized by their market capitalization, ranging from nano-cap (under $50 million market value) to mega-cap (over $200 billion).
  • All-cap funds may be either actively or passively managed and may have varying degrees of market breadth.

Understanding All-Cap Funds

An all-cap fund does not focus on a specific capitalization style. Instead, it can invest across the full range of market capitalizations. While there is no universal consensus on the exact definitions of the various market caps, the following parameters are a good approximation:

In targeted capitalization funds, these designations can inform mutual fund investors about the investment focus of the fund in terms of company size. While not investing by capitalization, all-cap funds may have other targeted investment styles or they may be flexible funds that focus just on capital appreciation. Investment objectives and strategies can vary broadly in all-cap funds.

All-Cap Fund Objectives

All-cap funds may often require greater monitoring and due diligence from investors because of the broad universe available for investment. Often these funds will only include all-cap in their fund name, requiring investors to dig deeper for comprehensive investing style details. Registered funds must provide full details on their investment objective and strategy in a prospectus included with the fund’s registration statement.

All-cap funds can be passively or actively managed. Passively managed all-cap funds can provide investors with total market exposure using indexes like the Dow Jones U.S. Total Stock Market Index and the Wilshire 5000 Index (TMWX).

Actively managed all-cap funds often take a more targeted approach to achieve capital gains. Common investment styles for all-cap funds can include growth, value, and income. Each uses active analysis to identify top performing stocks and achieve capital gains. The large universe involved in all-cap funds also makes it attractive for alternative management styles such as long/short strategies. Alternative managers can use leverage and derivatives to seek high market returns throughout all market cycles. In the case of long/short funds, investment managers seek to take long positions on stocks they believe will continue to outperform, while expanding the investment options to also include taking short positions on stocks they believe will underperform in the short and long term. Some funds may also broaden their eligible investments to international markets, which can provide for even greater latitude and a more diverse universe.

Example: Federated MDT All-Cap Fund

In the all-cap fund category, the Federated MDT All-Cap Fund (QKACX) has been a top performer. As of October 26, 2020, the Fund had returned nearly 9% to investors over the year. The Fund is benchmarked to the Russell 3000 Index, a market-capitalization-weighted equity index maintained by FTSE Russell that provides exposure to the entire U.S. stock market.. It invests using a fundamental quantitative process that seeks to provide for long-term capital appreciation.