How to decide on what Funds, IT, EFT

intowhere

to invest in??

Hi
I was wondering what tools, websites, resources etc people use to research and decide what funds to invest in? I have been researching and there a few really well know funds that have performed well for a number of years etc and are well know, but how do people decide to invest in a fund that invests in the more unknown sectors or markets. Is it a punt, is it based on reading the FT or Moneyweek etc? What do people use, and what should I be reading?
And related to this, why do some people have a preference for IT and EFT over unit trusts? I understand that IT are closed ended, so its like buying a stock, is this the main reason or do IT offer a slightly different type of investing?

bostonerimus

Not seeing the "Woodford" the trees is a common problem. There are just to many funds. So you need to cull them a bit. What I do is to simply ignore all active funds and sector funds and simply invest in broad global equity and bond market trackers. I'm in the US and have 50% in US equity, 20% international equity and 30% US bond market......you probably wouldn't want quite so much US if you are in the UK......and maybe I should have some international bonds.

Linton

A very good source of data about funds is https://www.trustnet.co.uk.

Which particular funds you choose doesn't matter much. What is important is what underlying shares, bonds etc you are invested in overall, their geography, industry sector, company size etc. This should be as broad a range as possible so as to both avoid too high a dependence on any one particular area and to be able to take some advantage of large rises that may occur.

How you do this will depend to a great extent on how much money you are investing, your experience, and much time and effort you wish to spend. A new small (say less than £30K) investor may be best advised to choose one fund that invests in everything. You can find such funds in Trustnet by looking at the mixed investment sectors.

Wealthier, more experienced investors may wish to spend their time choosing individual niche funds to provide the overall structure they require and to use the skills of particular fund managers.

As to the choice between funds, ITs and ETFs...

Again it doesn't matter a great deal, choose the areas in which you want to invest and then find the best vehicle. Funds tend to provide the broadest range, ITs tend to be more focused often with a particular investment style, and ETFs are mostly index funds. Each has characteristics that may be important in particular circumstances and each has its own disadvantages.

More generally...
1) don't choose a random set of funds on the basis of press reports, Internet forum hype or tips.
2) read widely but treat anything you read with a degree of scepticism, especially claims that a particular approach provides the true way to investment success.
3) choose the approach that you feel comfortable with but be open to the possibility that you may be wrong.

intowhere

Thanks both.
As an example UT / IT have done really well over the past 3 years. Were investors who got in 3 - 4 years ago taking a gamble that this sector would do well or was it based on some sort of detailed analysis; if it was the later then what sources would they have used?

I have started to read the various investing websites (IC, Moneyweek etc) and they often have a fund manager suggesting that people who invest in sector x for y reason; is this a good basis to make a decision?

dutchism1958

If you read Linton's reply again you will find the answers to your questions. It is a case of doing your own research and making the decisions that you are comfortable with.There is a wealth of information out there.Trustnet has been mentioned,there is also Morningstar for research.Motleyfool and Monevator have given me a greater understanding but also the many people on this forum who know far more than I do. As Linton says,treat recommendations from fund managers on investing websites with caution.

Audaxer

Unless you are starting with a large amount to invest I would invest in a low cost global passive multi asset fund with your preferred level of risk (percentage equities to bonds) that will be automatically rebalanced for you. In my view that is still a good investment strategy even for a very large investment, although some would say you are better with single sector active funds for large investments.

For a relatively small investment of under £30k I think it is definitely too costly and difficult to select the best mix of active single sector funds to get the best global coverage and best return on your investment.

ColdIron

intowhere wrote: »

I have started to read the various investing websites (IC, Moneyweek etc) and they often have a fund manager suggesting that people who invest in sector x for y reason; is this a good basis to make a decision?

I'd avoid Moneyweek unless you like speculation and exaggeration. I think they've predicted 46 of the last 2 crashes Many publications have vested interests so don't take their 'fund manager' puff pieces too literally

Linton

intowhere wrote: »

Thanks both.
As an example UT / IT have done really well over the past 3 years. Were investors who got in 3 - 4 years ago taking a gamble that this sector would do well or was it based on some sort of detailed analysis; if it was the later then what sources would they have used?

I have started to read the various investing websites (IC, Moneyweek etc) and they often have a fund manager suggesting that people who invest in sector x for y reason; is this a good basis to make a decision?

One should invest in every sector, not try to cherry pick the ones that will do well. The ones you choose may well fail to deliver and you may miss out on major rises elsewhere. The question then becomes in what %s should one invest. It is at that level you may wish to express your hopes, fears, beliefs and prejudices. There is no right answer. However worrying about %s only makes sense in larger portfolios. With small portfolios the benefits of a few % points allocated here or there are likely to be so small in absolute terms that it's not worth the effort.

Linton

dutchism1958 wrote: »

.....As Linton says,treat recommendations from fund managers on investing websites with caution.

Not just fund managers!

BLB53

As an example UT / IT have done really well over the past 3 years. Were investors who got in 3 - 4 years ago taking a gamble that this sector would do well or was it based on some sort of detailed analysis; if it was the later then what sources would they have used?

I think probably the best place to start is to draw up your strategy or plan which will involve some research. A good source of free info would be UK blogs such as Monevator http://monevator.com/category/investing/
and DIY Investor http://diyinvestoruk.blogspot.co.uk/p/basics.html

You might also read some books such as Tim Hales 'Smarter Investor'.

The two broad approaches for the small investor are either actively managed funds or ITs or low cost index funds/ETFs. I would recommend the index route and especially the Vanguard Lifestrategy.

One important aspect is to try to match your strategy to your personality type which may not be apparent until you actually invest your hard-earned cash.

Linton

BLB53 wrote: »

I think probably the best place to start is to draw up your strategy or plan which will involve some research. A good source of free info would be UK blogs such as Monevator http://monevator.com/category/investing/
and DIY Investor http://diyinvestoruk.blogspot.co.uk/p/basics.html

You might also read some books such as Tim Hales 'Smarter Investor'.

The two broad approaches for the small investor are either actively managed funds or ITs or low cost index funds/ETFs. I would recommend the index route and especially the Vanguard Lifestrategy.

One important aspect is to try to match your strategy to your personality type which may not be apparent until you actually invest your hard-earned cash.

I think the final paragraph is very important. You need to invest in a way that you can live with as you will experience major rises and falls. You cant spend your life in wild euphoria and deepest gloom as you see £Ks come and go over a few days

In my view active/index is a second level implementation detail. There are many other broadly based funds than Vanguard Life Strategy, some arguably better and more broadly based.

Up to the OP to read and understand the issues.

Either way going for a fund that invests very broadly is the important lesson. Which one is chosen is very much less significant.

To quote myself...

Read widely but treat anything you read with a degree of scepticism, especially claims that a particular approach provides the true way to investment success.