Universe of Securities
Candlefocus EditorAt the most basic level, a universe of securities can be thought of as the collection of securities used as benchmarks for investment comparison. This universe can include stocks, bonds, Exchange Traded Funds (ETFs) and Mutual Funds (MFs). Depending on the investor’s goals, the universe of securities can be further defined to include higher risk or higher reward securities, small cap companies or blue chip stocks, actively managed funds or passive ETFs.
When building a universe of securities, an investor first needs to determine what type of asset class they want to invest in, as this will determine the starting point. Common asset classes are stocks, bonds and funds, but there are many others such as real estate, commodities or options. Once the asset class is decided, the investor is then ready to begin narrowing down and filtering the available securities. Parameters such as company size, credit quality, industry, sector and liquidity are all potential filters. Applying these filters will further narrow the universe of available securities and help the investor create a portfolio tailored to their goals.
Universes of securities are useful tools for both advisors and individual investors alike. By allowing investors to zero in on the types of investments they are looking for, the universe of securities can help create a more focused and efficient portfolio. In addition, universes of securities can also help investors determine how to measure performance against benchmarks, helping to ensure that portfolios succeed in reaching the investor’s desired outcomes.