DIY Investor Magazine
|
June 2017
45
to see the IA Sectors Matrix
Reflecting what your investment goals might be, funds
fall broadly into two categories; those that aim to
produce income and those that aim for capital growth.
The next level of classification is the type of asset (e.g.
shares, fixed income), geographic region or industry
sector in which the fund invests.
Some funds sit in sectors focused on capital protection,
such as money market funds, or are in the specialist
category, and some choose to remain unclassified.
The targeted absolute return sector contains funds that
aim to produce positive returns in all market conditions.
If you are starting out, you might want to consider a
global fund, the ultimate in diversification, as this will
give you broad exposure to different markets and you
don’t have to make choices as to how to split your
investments.
You may take the view that you want to stick closer to
home, in which case one of the funds investing in the
UK would be your first choice.
Generally speaking, the narrower the fund’s investment
objective, the more specialist it is and therefore the less
diversified.
PASSIVE OR ACTIVE MANAGEMENT
Another aspect which it is worth considering is whether
you would prefer to select a passive fund, like a tracker
or Exchange Traded Fund (ETF), which follow an index
or an actively managed fund, where the fund manager
is making the decisions about which companies or
investment vehicles to invest in.
This is not necessarily an either-or choice. Following the
diversification argument, you might choose to have a
mix of passive and active funds in your portfolio.
FUND PERFORMANCE
Finally, the thorny issue of fund performance; you have
an idea of which sectors you want to invest in, but there
are usually many funds belonging to the same sector.
Websites like
nd
provide a
wealth of information, including fact sheets on each of
the funds, ratings and risk/return analysis.
If you are using an investment platform, this will also
provide research and information on the different funds
available. Some platforms also set up model portfolios,
which can offer some good ideas on how to combine
fund selections to achieve your investment goals.
