Whats your Process/Method/Criteria for choosing funds from the thousands available?

purple_rose

It would be interesting to know how you go about choosing funds to invest in. Once You know your allocation to groups/sectors, risk appetite, objectives, timeline. How do you work through the next level of detail to choose the actual fund holdings.


As an example of objectives lets say:

- A timeline of 20 years before retirement.
- Risk appetite - adventurous - Aggressive but diversified
- Groups/Sectors - UK, Global, Bonds

- Objective: Growth
- Low cost (Portfolio average 0.75 OCF with assessment on a per fund basis)

- 50% active Funds/ 50% Passive Funds

- Sum = say £400k

How would you go about choosing funds to meet these objectives

What is your method or process?
What quantitive analysis do you do?
What other research do you do?
Which websites do you use ?
What other sources do you use (e.g. publications, Other forums etc..)?

What criteria does the fund need to fill before you invest?
How much time do you spend choosing a fund?
etc, etc.... I think you get the picture.

Any info would be helpful to myself and others who are trying to choose out of the thousands of funds out there.

Although the posts may drift into other related topics slightly. The question is -how do you choose your actual fund holdings within the sectors/groups you have chosen. Hopefully we will get many varied approaches based on personal experience (good and bad), Many Thanks for your contribution

ColdIron

The first thing to do is identify what your objectives are. Then look for investments that satisfy those objectives. Then and only then look for the best platform to use for them. You seem to be doing this backwards

What are your objectives, what do you want them to achieve? Do you want them to provide long term growth or maybe reliable income? What are your attitudes to risk, are you a conservative or adventurous investor? How long will you be investing? Do you believe in the wisdom of the markets and want to minimise costs or do you think an active manager is worth the extra cost and will beat the indexes that track those markets? What sort of sums are you considering? If it's less than a five figure sum then a single broad fund will suffice

It's like asking what method do you use for choosing food without knowing whether it's to feed a hod carrier from Hull or a vegan teenager from Virginia Water

aroominyork

See post #6 on this. It'll get you started! https://forums.moneysavingexpert.com/discussion/5858580/iweb-or-interactive-investor-range-of-funds

purple_rose

ColdIron wrote: »

The first thing to do is identify what your objectives are. Then look for investments that satisfy those objectives. Then and only then look for the best platform to use for them. You seem to be doing this backwards

What are your objectives, what do you want them to achieve? Do you want them to provide long term growth or maybe reliable income? What are your attitudes to risk, are you a conservative or adventurous investor? How long will you be investing? Do you believe in the wisdom of the markets and want to minimise costs or do you think an active manager is worth the extra cost and will beat the indexes that track those markets? What sort of sums are you considering? If it's less than a five figure sum then a single broad fund will suffice

It's like asking what method do you use for choosing food without knowing whether it's to feed a hod carrier from Hull or a vegan teenager from Virginia Water

Thanks, this question was assuming that you know your risk appetite, your preferred allocation, objectives and timeline. Its asking for the next level of detail. Ive amended the post.

purple_rose

aroominyork wrote: »

See post #6 on this. It'll get you started! https://forums.moneysavingexpert.com/discussion/5858580/iweb-or-interactive-investor-range-of-funds

Thanks Ive started a new thread as that thread was originally about something else and I couldn't find a thread on this topic in any level of detail on the forum.

purple_rose

DunstonH posted this in another thread:


Beta vs Benchmark Risk 1, 3 & 5 Years
Beta vs Sector Risk 1, 3 & 5 Years
Historic Value at Risk Risk 1, 3 & 5 Years
Historic Value at Risk vs Benchmark Risk 1, 3 & 5 Years
Historic Value at Risk vs Sector Risk 1, 3 & 5 Years
Max Drawdown Risk 1, 3 & 5 Years
Max Drawdown vs Benchmark Risk 1, 3 & 5 Years
Max Drawdown vs Sector Risk 1, 3 & 5 Years
Volatility Risk 1, 3 & 5 Years
Volatility vs Benchmark Risk 1, 3 & 5 Years
Volatility vs Sector Risk 1, 3 & 5 Years
Alpha Manager Change Performance Once a year
Alpha vs Benchmark Performance 1, 3 & 5 Years
Alpha vs Sector Performance 1, 3 & 5 Years
Bottom Quartile Performance Measured over previous four quarters
Crown Rating Change Performance Twice a year
Return Performance 1, 3 & 5 Years
Return vs Benchmark Performance 1, 3 & 5 Years
Return vs Sector Performance 1, 3 & 5 Years
rSquared vs Benchmark Behaviour 1, 3 & 5 Years
rSquared vs Sector Behaviour 1, 3 & 5 Years
Tracking Error vs Benchmark Behaviour 1, 3 & 5 Years
Tracking Error vs Sector Behaviour 1, 3 & 5 Years
Asset Inflows/Outflows Structure As provided by provider
Benchmark Change Structure Constantly monitored
Group Change Structure Constantly monitored
Manager Change Structure Constantly monitored
Sector Change Structure Constantly monitored
TER Change Structure Constantly monitored

Weightings that fall within a target volatility range overall. Weightings provided by an actuary.
Funds that have at least 85% Asset weighting the chosen area.

(some of the above may not apply to all areas)

The calculations in the governance tool are re-run and examined at least once a week. Major issues are flagged up as red and minor ones as yellow. All new issues are recorded in the governance log. The issues are then distributed to the relevant analyst responsible for the monitoring of each particular fund.

An appropriate investigation is undertaken on each fund. This may include greater quantitative analysis of the fund or reviewing logs of previous meetings with the fund manager to see if they had forewarned of the change. If no explanation is readily available, the fund management group will be contacted to explain the anomaly. Once the investigation is completed, the analyst will summarise their findings. If they are still concerned by a fund, it is communicated to the head of research.

During the course of their investigations, the fund analysts may identify funds they believe will need careful monitoring. These funds will be added to the internal watch-list. It will be the analysts!!!8217; responsibility to regularly monitor such funds until they are happy the original issue is resolved. If they have immediate concerns regarding the continued suitability of the fund, it will be assigned the status of !!!8220;critical!!!8221; and escalated to the highest level.

The investment committee is involved in the governance process if the analysts identify a critical issue with a fund. At this point, based on the governance tool and the analysts!!!8217; findings, the committee!!!8217;s members will need to make a decision on the fund!!!8217;s continued participation in the Approved List. If they are not satisfied, they can remove it from the list.

....well you did ask

purple_rose

To which i replied this:

So i assume is these are metrics a fund looks at when analysing its own fund ( including a fund of funds).

What governance tools are available for a every day joe to do this sort of analysis? (more interested in the free ones if there are any)

What does the below mean?
- Weightings that fall within a target volatility range overall.
- Weightings provided by an actuary.
- Funds that have at least 85% Asset weighting the chosen area.


For the metrics where its - X vs Y (e.g.Historic Value at Risk vs Sector Risk) - i guess it gives a ratio. Is there any guidance on what a good/bad ratio number is for all those metrics?


I didn't see the P/E ratio in there is it covered somewhere?

purple_rose

ColdIron wrote: »

Then look for investments that satisfy those objectives

Ive modified the question. Its asking about how you carry out the above task (in some detail).

As an example of objectives lets say:

- A timeline of 20 years before retirement.
- Risk appetite adventurous - Aggressive but diversified.
- Objective: growth
- Low cost(Portfolio average 0.75 OCF with assessment on a per fund basis)
- 50% active Funds/ 50% Passive Funds
- Sum = say £400k

How would you go about choosing funds to meet these objectives ?


So,You know your allocation, risk appetite, objectives, timeline. How do you work through the next level of detail to your chosen funds.

What is your method or process?
What quantitive analysis do you do?
What other research do you do?
Which websites do you use ?
What other sources do you use (e.g. publications, Other forums etc..)?

What criteria does the fund need to fill before you invest?
How much time do you spend choosing a fund?
etc, etc.... I think you get the picture.

Any info would be helpful to myself and others who are trying to choose out of the thousands of funds out there. Thanks.

ColdIron

If the sums are small you could, and should, skip all that analysis and choose a single multi asset fund. There have been many posters that come up with proposed portfolios of 10 or more funds when they will be contributing £50 to £100 a month which is completely pointless and would likely produce a poor result. Do the amounts you are considering justify such in depth research?

purple_rose

ColdIron wrote: »

If the sums are small you could, and should, skip all that analysis and choose a single multi asset fund. There have been many posters that come up with proposed portfolios of 10 or more funds when they will be contributing £50 to £100 a month which is completely pointless and would likely produce a poor result. Do the amounts you are considering justify such in depth research?

Ive put the objectives and amount in the above post. I think all the analysis and research is fun and want to know how to do it and how others do it . Most experienced folk must have a take on this - theres no right answer - i know!

dunstonh

As an example of objectives lets say:

- A timeline of 20 years before retirement.
- Risk appetite adventurous - Aggressive but diversified.
- Objective: growth
- Index/low cost active ( below 0.75 OCF)
- Sum = say £400k

I have toyed with putting an OCF cap on the filtering but the consequences of that was that you eliminated many of the best funds in certain sectors. Especially Asia, Emerging Markets and a couple of others.

Of the 13 funds covering the sectors in our model, four of them exceed your 0.75% OCF. three of them are the top long-term performers in the portfolio. The 4th is a property fund (which are more expensive by default). There was no suitable alternative below 0.75% without compromising on the returns potential.

So, we decided not to put a hard filter in place for OCF (hard filter as in not showing any fund exceeding the figure). Instead, we take it into account but on a soft basis. i.e. see the results of that match the criteria and then decide if the OCF is worth it or not.

On that basis, despite including 4 funds over 0.75%, none of our portfolios exceeds 0.75% as a weighted OCF. So, the inclusion of a few more expensive ones is not damaging.