Investments

Gulf Between Private And Professional Investment Views

Investment funds are increasingly popular with investors and financial experts often point to them as a way of bringing strong returns.

An investment fund allows a group of investors to pool their money to buy a range of investments which avoids them being over-exposed in one particular sector.

While not as popular as unit trusts or open-ended investment companies (Oeics), investment trusts are generally listed companies with shares that trade on the stock market.

Now a survey from the Association of Investment Companies (AIC) has revealed what investors look for in an investment trust – but it’s often far removed from what an industry expert would recommend.

The survey found that investors believe that a fund’s performance was the most important consideration when selecting an investment and the second most important issue is the fund’s manager.

What investors should look for in a fund

In third place when it comes to selecting an investment fund for investors was the portfolio’s composition and fund charges were fourth in line for consideration.

None of the people questioned flagged up discount levels or gearing exposure as important and the least important factor was media coverage and communication.

The AIC’s head of training, Jacqueline Lockie, has a different view of what investors should be looking for in an investment trust.

She says portfolio composition is the most important issue for potential investors because the range and types of investments are what drive fund returns.

Like most other investments, the better returns come from investment funds focused on high risk investments though most funds have a strong mix of asset classes.

The next most important issue for investors is the question of charges since this will have an impact on returns.

Working hard to stand still

For example, if a fund increased by 7% in a year and had charges of 1.5% then the investor would only see a return of 5.5%.

Investors should also remember that the higher the charge, the higher the fund has to work just a stand still.

However, Lockie points out that most funds demand heavy manpower to carry out research and pay for specialist expertise, so will carry higher charges than other funds.

Next, investors should be looking at geographical weightings and either focus on a UK fund which would be spreading its investments across a range of industries and sectors or the investor could head for an emerging economies fund which will carry a higher element of risk.

Annabel Brodie-Smith, the AIC’s communications director, said the difference in priorities between private and professional investors is important since the financial services regulator highlights that a fund’s past performance is no indication of its future performance.

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