Picking funds

jfpeeps

I am thinking of buying some funds as an easy way to invest in markets that I do not know enough about to buy shares in, for example I currently have nothing in emerging markets and would like to put say 10% into that area. Could anyone recomend good research tools / sites or have any advise on things to look out for. I would also like to look at funds in other areas not just emerging markets.

turbobob

The best ones are probably https://www.trustnet.com and https://www.morningstar.co.uk

https://www.citywire.co.uk and https://www.fundstrategy.co.uk are also worth looking at for any news or comment about a fund you are interested in.

Some of the discount supermarkets like Hargreaves Lansdown make comments and recommendations but remember they are in the business of selling you something, so comment from them should be viewed in that light.

jfpeeps

Thanks, from the time I have spent looking at those they seem a great place to start. Any thoughts on what I should avoid / look for, are ETF's the way to go?

dunstonh

ETFs are generally for the more experienced investor. They are traded in the same way as shares (and not like unit trusts). You often find those that trade in shares will have a preference for ITs and ETFs. If you have the time to learn and research then that will be less of an issue.

Unlike OEICs or unit trusts, ETFs do not necessarily trade at the net asset values of their underlying holdings. Instead, the market price of an ETF is determined by forces of supply and demand for the ETF shares. That can be an advantage at times but also a disadvantage if you are not careful.

Costs and trading efficiency are certainly advantages. However, depending on your frequency of purchasing and the amounts you could find the costs are actually higher than unit trust/OEICs.

jfpeeps

Thanks dunstonh

I have been reading up on ETFs but most of the info so far is from companies selling them so I am looking for the other side of the argument. You have made that side much clearer now I understand price is linked to demand not performance (although the two should normally be linked to some degree (I think!)) like shares. I would likly be being buying two BRIC ETFs and am not planning to trade them very often the amounts would be 2-3K per ETF. How does it work if you want to drip feed into these funds on a regular basis, a trading fee would obv make that unresonable or is that all dependant on the fund?

thrupence

jfpeeps wrote: »

Thanks dunstonh

I have been reading up on ETFs but most of the info so far is from companies selling them so I am looking for the other side of the argument. You have made that side much clearer now I understand price is linked to demand not performance (although the two should normally be linked to some degree (I think!)) like shares. I would likly be being buying two BRIC ETFs and am not planning to trade them very often the amounts would be 2-3K per ETF. How does it work if you want to drip feed into these funds on a regular basis, a trading fee would obv make that unresonable or is that all dependant on the fund?

If you're dripping in regularly then you're probably better going for the Unit Trusts/OEICs.There's plenty of very good BRIC investment funds, which aren't overly expensive in terms of annual management fees.

The other thing is that now may not be the best time to invest in BRICs, though dripping in should help you here.

Russia is up massively since last November; China/Hong Kong is up quite a bit; Brazil/Latin America up a bit less and India up the least.

Of course they could all go up from here without ever dipping for years. No one really knows, but still I'll be waiting and watching the performance of my funds hoping for another dip before investing this year's ISA allowance.

turbobob

jfpeeps wrote: »

You have made that side much clearer now I understand price is linked to demand not performance (although the two should normally be linked to some degree (I think!)) like shares.

Well, as far as I know ETF's prices are very much linked to the NAV (net asset value) which is the underlying value of the investments. I believe the supply of ETF "shares" in circulation is controlled by the issuer so its impossible for them to trade at a deep discount or premium. The spreads (difference between buy and sell price) can be quite significant on the less popular ones though.

Investment trusts on the other hand are very open to moving from the NAV. Essentially its unlimited. However, the discount or premium can work in your favour. For example I invested in a fund of hedge fund investment trust in December (soon after the Madoff story broke). Due to a big sell off of investment trusts investing in hedge funds, it was trading at something like a 60% discount to NAV when I bought. I thought it was risky but bought on the basis that the discount would close up once the sell off stopped. It did and I sold my holdings little over a month afterwards for IIRC an 80% profit :money:

jfpeeps

Ok can I get some things clear.

Unit trusts are NAV based and you can buy them in units at % purchase cost (so say £50 per month is fine as the fee will be say 1% of £50)

EFT are not NAV based but tend to closly follow NAV. Like shares you pay a trading fee (say £10) to buy them and not a % so £50 per month would not be any good as you would loose 20% per month)

ITs are not NAV based so their value is linked to perceived value or availability. Their purchasing costs work how?

I am looking at 2-3k per fund then drip feeding, I don't have to do the drip feed but do not want to expose more of my portfolio to this kind of risk at this time, I wanted to drip feed to keep it in line % wise with everything else. I could just open other funds to drip feed but was trying to keep the number of funds I had to track down.

Thanks for everyones help!

turbobob

IT's are shares. If you invest in an IT you are buying shares in the trust which is basically an investment company. IT's have a chairman and a board. So just like any other shares you would have to pay broker commission and purchases are also subject to stamp duty of 0.5%.

ETF's on the other hand are not subject to stamp duty, but otherwise trading them is the same as shares.

I would say for monthly investing over the long term, unit trusts are going to be the easiest and cheapest option. Many discount brokers will allow you to make investments in UT's without an initial charge.

ozzage

You can regularly buy ETFs for £1.50 per trade, so I wouldn't use £10 as an indicator of trading cost.

I still wouldn't do it for £50 per month, but the break-even point when only paying £1.50 is obviously much better than if you're paying £10.

Bear in mind that the annual charges are almost always lower with ETFs than with funds, which over time claws back the cost of buying them.