Choose your fund
Once you’ve decided where to invest, the next step is to choose a fund that invests in that area.
With more than 4,000 funds and investment trusts available in the UK, this could be a daunting task. But that’s where FundCalibre comes in. We do a lot of the hard work for you, seeking out excellence and whittling down funds to a more manageable number.
Explanation of sectors
The aim is to help investors navigate more easily around the thousands of portfolios that are available by grouping together those with similar. objectives. Most are defined on an asset-type basis, such as equites, fixed income, or property.
They are then broken down further so investors can make better like-for-like comparisons.
For example, investors wanting exposure to smaller companies can find sectors devoted to businesses of this size in the likes of the UK, Japan, Europe, and North America. There are even sectors for funds and trusts that have a more unique focus, such as commodities, healthcare, and infrastructure.
FundCalibre categorises its Elite Rated funds in the same way, as you can see here.
How to research a fund
There is plenty of information available on funds on the internet. Each month, for example, the fund provider will issue a factsheet giving the latest information on its overall positioning. You can also find these on FundCalibre’s fund note pages.
You will need to find out the fund’s stated aims to ensure its objectives remain consistent with your overall investment goals. And it’s crucial to understand exactly what the manager is buying, as marketing teams can come up with many weird and wonderful ways to describe portfolios.
FundCalibre gives its own overview of Elite Rated and Radar funds on each of our fund notes.
The importance of a fund manager’s track record
This is crucial. Before investing any money, you need to be confident your chosen fund manager can achieve decent returns. There’s no point buying a fund based on its fantastic 10-year track record, if the current manager has only been in place for a few months.
Of course, finding someone that can perform to a consistently high level is easier said than done, and will require you to carry out thorough research. Various factors should be considered. These include the structure of the investment house, its overall philosophy, and the manager’s style.
While it’s a common mantra that past performance is no guarantee of future success, it can indicate whether they can deliver the goods. Also, while short-term underperformance can be a red flag and used to highlight that something needs investigating, it shouldn’t be the sole driver of the decision.
There are plenty of reasons why a fund may have underperformed. The manager may have picked the wrong stocks, taken on too much, or just lacked experience operating in certain markets. Sometimes it’s down to the fund’s objective not suiting the economic backdrop. For example, funds buying young, exciting stocks may not do well when the stock market shuns grown names. Economic problems in certain parts of the world and political instability can also affect performance.
FundCalibre does the work for you
Sound a bit too much to do on your own?
Again, FundCalibre has already done this work for you. For a fund to be Elite Rated, first the manager must have a track record of at least three years –preferably longer – and our AlphaQuest screen will decide if any outperformance has been down to good luck or good judgement by stripping out the market movements and analysing the manager skill.
Only if the manager’s performance has been consistently good and we are confident this can be repeated, will the fund be considered for a rating.
Where a fund is relatively new, or there has been a manager change, we may consider it for an Elite Radar, if we have been convinced it is worth watching for the future.
You can find out more about how we go about picking funds here.
Think you’re ready to choose a fund? Let’s get started!