# Universe of Securities: What it Means, How it Works

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## What Is a Universe of Securities?

A universe of securities generally refers to a set of securities that share a common feature. For example, the broad universe of stocks for a U.S. investor will include all [listed companies](https://www.investopedia.com/terms/l/listedsecurity.asp), large and small, and may also include foreign companies listed as [American depositary receipts](https://www.investopedia.com/terms/a/adr.asp) (ADRs). For some investors, a narrower universe may be used that is constrained to only value stocks or those with a market cap above some minimum threshold.

### Key Takeaways

*   A universe of securities refers to the complete set of securities that share some common feature or features.
*   The scope of features used to define a universe of securities can be broad or narrow depending on an individual investor's goals and preferences.
*   Universes of securities often begin at the level of asset class and then become narrower by filtering parameters such as company size, credit quality, type or sector, and so on.

## Understanding Universe of Securities

Security universes can be used for different purposes. Institutionally, investment managers typically specify a universe of securities that defines some of the investing parameters for a managed fund. Broadly, investors may choose to allocate different portions of their personal portfolio based on various security universes with different risk-reward characteristics.

A universe of securities can be broad or narrow based on the defined parameters, and can vary among different investors or portfolio managers. The investable universe, or [market portfolio](https://www.investopedia.com/terms/m/market-portfolio.asp), includes all tradeable assets. In reality, most investors do not invest so broadly, and so a universe of securities could typically encompass all of the securities in a particular [asset class](https://www.investopedia.com/terms/a/assetclasses.asp). Within asset classes, universes will typically be focused on factors such as capitalization or industry.

Investors will often look to broad universes of securities when building out a diversified portfolio and may segregate universes by [fixed income](https://www.investopedia.com/terms/f/fixedincome.asp) and equity. An investor with a conservative risk tolerance may be willing to consider any type of fixed income [security](https://www.investopedia.com/terms/s/security.asp) for a fixed income portion of their portfolio because the risk of loss for fixed income investments is generally lower than other market investments. An investor seeking a slightly higher return and risk may want to focus on the entire universe of [equities](https://www.investopedia.com/terms/e/equitymarket.asp).

Within the fixed income asset class, there are several universes to consider. Many investors and managed funds segregate fixed income by [term to maturity](https://www.investopedia.com/terms/t/termtomaturity.asp). Generally, shorter-term maturities will have lower [interest rate risk](https://www.investopedia.com/terms/i/interestraterisk.asp), while longer-term maturities have higher interest rate risk. Other universes in fixed income can include government, municipal, or corporate. Further segregation can also create universes by [credit quality](https://www.investopedia.com/terms/c/creditquality.asp) or geographic location. Oftentimes, a specific index will also form the basis for a universe of securities.

The equity market also has many different segregation parameters for universes. Equities will commonly be divided by [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), which can create large, mid, and small-cap universes. Other universes may include geography, growth, value, or sector. In the equity market, [indexes](https://www.investopedia.com/terms/i/index.asp) are also commonly used to form the basis for a universe of securities.

## Universe Analysis

Universes of securities are commonly the focus of research studies and analysis that can help to support all kinds of investors. Active [traders](https://www.investopedia.com/terms/t/trader.asp) focusing their investment strategies on certain universes will often analyze the historical characteristics of a universe of securities for insight on future trades and trading analysis.

Consider a technical trader focusing on [small-cap](https://www.investopedia.com/investing/introduction-to-small-cap-stocks/) stocks. This trader would want to focus their analysis primarily on a universe of small-cap stocks rather than a broad market universe like the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) or Russell 3000. To analyze the small-cap universe, they could do historical time series analysis on the [Russell 2000](https://www.investopedia.com/terms/r/russell2000.asp) to identify various characteristics and regressive tendencies. A wide variety of software is also available for traders to develop forward-looking forecasted security prices.