Choose your fund

Sam Slator 28/09/22 in Basics

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.

On our website you can research our Elite Rated and Radar funds, read our investment ideas and insights, listen to our podcasts, watch our filmed interviews and learn more about investing.

Explanation of sectors

Funds are split into different sectors by the Investment Association, the trade body for UK investment managers. The Association of Investment Companies does the same for investment trusts.

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!

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.