Identifying good Funds.

Zippeh

I'm new to this investing lark, and I was wondering how to spot a "good" fund. I understand that fees come into it, but what else do people look for? I'm sure things like diversification of investments comes into it, but if you decide on a sector, how do you then decide which fund in that sector to go for?

colsten

Unless you are a very high risk investor, you would never invest in just one sector. Most investors look for a balanced portfolio. You should do quite a bit of reading before you commit any money. There is a thread on this forum with recommended books and websites. An easy to understand one is http://monevator.com/category/investing/passive-investing-investing/

Zippeh

That's great thanks I'll take a look.

Sorry, yes I'm aware that you wouldn't invest in just one sector. But surely as part of a balanced portfolio you might identify a sector that you "need" in your portfolio, and then research.

Voyager2002

Decide which sectors you want, and choose perhaps 5-10 funds that cover those sectors. Look at the management team and at reviews of the managers' performance: you can find these on sites like Citywire...

Alternatively, look at passive investing (trackers or ETFs) in the sectors that you have chosen, where fees are much lower but you simply track a sector rather than having a manager choosing different companies within that sector.

puk999

The core of my portfolio is in a global equities tracker. This spreads risk among many companies and countries. I pay 0.18% annual fund management charge for this which I understand to be low. There are platform fees on top. My ISA platform provider charges 0.25% per annum, and my 2 SIPP providers charge 0.30% and 0.35%.

I hold 2 bond funds too to offer some more diversification to the equities. My equity:bond split is something like 85:15. I have a couple of other satellite funds too to try and improve returns (e.g. biotech, emerging markets which aren't covered in my global equity fund tracker).

The idea of having a core of global equity tracker made a lot of sense to me. The lions share of the money is there and the fees are very low. Picking a fund that is more "good" than this in advance is nigh on impossible.

Ryan_Futuristics

puk999 wrote: »

The idea of having a core of global equity tracker made a lot of sense to me. The lions share of the money is there and the fees are very low. Picking a fund that is more "good" than this in advance is nigh on impossible.

But oddly constructing one is very easy

The problem with cap-weighted indexes is you typically get very concentrated exposure to one or two sectors and a handful of companies at the very top ... And once a company is a market leader, its share price will tend to under-perform the rest of the market

(Typically, when you're at the top, the only way to go is down - and few companies stay at the top for long)

So if you simply construct a cap-weighted index, and remove the top 1, 2, 3 or half-dozen companies, you suddenly get something that performs better - you get a sort of window on companies *rising* to the top, rather than a concentrated portfolio of the ones already there

And a FTSE 250 index is just a version of this, and just look at its long-term performance

colsten

puk999 wrote: »

The idea of having a core of global equity tracker made a lot of sense to me. The lions share of the money is there and the fees are very low. Picking a fund that is more "good" than this in advance is nigh on impossible.

You got a very reputable person agreeing with you on this: http://monevator.com/why-a-total-world-equity-index-tracker-is-the-only-index-fund-you-need/

MarkBargain

My worry when investing was that I didn't want to fund any companies involved in human/animal rights abuses, arms, tobacco etc. so I went with a range of ethical funds covering UK and worldwide with fees all under 1%. Looking at the details of the funds there are still shares in there I don't like, but it's better than nothing. Going by the hisory, they seem to perform very well.

JohnRo

Ryan_Futuristics wrote: »

So if you simply construct a cap-weighted index, and remove the top 1, 2, 3 or half-dozen companies, you suddenly get something that performs better - you get a sort of window on companies *rising* to the top, rather than a concentrated portfolio of the ones already there

And a FTSE 250 index is just a version of this, and just look at its long-term performance

That's the logic I've applied in my growth portfolio to a quite heavy allocation of vanguard global small cap (though not that small by some standards) tracker. Hopefully it'll prove to be the case, alongside regional large cap trackers.

Zippeh

Looking at the vanguard global small cap as an example and it says that it has a historic yield of 1.2%. That seems poor to me. Am i misunderstanding the figure?

TCA

That's just the dividends from the companies it's invested in. You'd mostly be investing for capital growth in that kind of fund.