DIY Investor Magazine
/
2015 Issue
9
While these are the objectives of the funds, you
will find a variety of structures from Unit Trusts
and OEICS to (quoted) Investment Companies, to
index tracking Exchange Traded Funds.
DIY Investor will be producing a guide to these
alternative fund structures later in the year so look
out for it.
PICK A FUND OR PICK A FUND MANAGER?
One of the great things about the internet is that it
is relatively easy to compare the past performance
of different funds and the past performance of
fund managers. It’s why many fund managers
become ‘stars’ to their companies and investors.
As Head of UK Equities at Invesco Perpetual, Neil
Woodford became one of the most notable. He
managed almost £25 billion of assets and was
afforded City rock-star status due to the market-
beating returns he achieved.
Past performance is no guarantee of future returns
and investors should look beyond this, particularly
to the risk of the asset. But it remains important
to review manager and fund performance against
their benchmark.
You should do this before you invest and continue
to monitor once you hold the fund. Fortunately,
there are companies such as Morningstar and
Financial Express who use historic data to rank
funds and DIY investors can use these.
When it comes to the most abundant funds – Unit
Trusts and OEICS - many DIY platforms have fund
selector tools to allow you to screen the thousands
of products that are available and most will allow
you to avoid the Initial Charge of up to 5% you
could incur by going direct to the fund manager.
Some will offer a range of ‘Best Buy’ or ‘Selected’
funds that may come with specially negotiated
terms and you will have the option to invest a lump
sum or set up a regular investment.
Make sure that you take full advantage of the
new ‘NISA’ accounts that allow you to invest up to
£15,000 p.a. free from Capital Gains Tax.
‘CLEAN FUNDS’
Most Unit Trusts and OEICs will require a
minimum investment - typically £500 to £1,000
- and there are often two versions of each
fund- an accumulation class (acc) which rolls
all dividend income back into the fund to boost
growth, or an income class (inc) which pays out
dividends to those who wish to have them as
income.
Historically funds levied a 1.5% Annual
Management Charge (AMC) which paid for the
running of the fund and returned half of that
to financial advisers and platforms that sold
the fund. However the government’s Retail
Distribution Review (RDR) in December 2012
prohibited these payments for new investments
and new ‘clean’ funds were introduced, which
typically charge 0.75% to 1% and pay no
commission back to advisers or platforms.
The arrival of so called ‘clean funds’ has meant
a baffling array of types of the same funds
with little consistency in terms of their naming
convention or charging structure. As such, the
new ‘clean’ class can sometimes be ‘unbundled’
(there’s also ‘super-clean’) and those with higher
management fees ‘inclusive’; AMC is a drag on
your investment, so it is important to understand
the charging structure of the funds you select.
To make an apples-and-apples comparison
look at the Total Expense Ratio (TER) of the
fund to see the total cost of ownership or its
replacement, ‘Ongoing Charges’.
That’s it for now – you’re on your way to being a
DIY investor and taking control of your financial
future. Make this a New Year’s resolution that
you stick to in the years ahead and all of those
financial goals can be within your grasp. And
there’s more good news – by the time you read
this you will be able to raise a glass to your own
rectitude without breaking any of your other
resolutions!
FUNDS ARE SOMETIMES KNOWN AS
‘COLLECTIVES’ WHICH POOL FUNDS TO INVEST
IN A RANGE OF UNDERLYING ASSETS.
