Get clued up on the finest funds

Don’t get overwhelmed by the large choice of products - there are easy ways to filter the market…

Everyone knows the importance of saving and investing to ensure you have enough money to enjoy a decent retirement, writes Daniel Coatsworth, editor of SHARES magazine. But how many of you have given up trying to fill a stocks & shares ISA (individual savings account) because there is too much choice? Many, I'm sure.

There are thousands of individual companies on the UK stock market and a multitude of funds, investment trusts and exchange-traded products from which you can select and build an investment portfolio.

A scattergun approach to choosing products is unwise and could prove a costly mistake over time. Instead, anyone with limited investment experience should consider what type of product they want to buy and then start to filter the range to have more focus. For example, you may wish to have one fund that invests in UK companies; another to give you exposure to the US market; and a third that invests in dividend-paying businesses.

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Diversified appeal

Novice investors may wish to start with investment funds rather than individual company shares because they can give you exposure to lots of different stocks in a single product and therefore provide welcome diversification.

Imagine you own three individual company stocks – Vodafone, Royal Mail and Barclays. Two of these companies issue bad news and both their share prices fall 10% on the day; that would cause a serious dent in your overall portfolio. In contrast, a fund generally holds a lot more than three companies. You would expect to see at least 10 or 20 holdings; in which case, any decline in one or two of the investee companies within the fund may only cause a marginal decline in the overall fund valuation.

Investment trusts are one of the main categories of funds. They are run by a fund manager but also governed by an independent board. You buy shares in investment trusts in the same way as you would buy or sell an individual company share, such as going through a share dealing platform provider like AJ Bell Youinvest.

Fortunately there is a wealth of information on investment trusts available online, and some great tools that let you filter the market.

Helping hand

A good starting point in researching the investment trust space is the website of the Association of Investment Companies (AIC): www.aic.co.uk. On the site’s homepage, click on the ‘Analyse investment companies’ option and this will take you to an overview page.

A drop-down menu offers a choice of sectors. Let's say you want to find funds that invest in UK companies such as Rolls-Royce, Lloyds Banking or Merlin Entertainments. You would select the ‘UK All Companies’ option on AIC website and hit the 'search' button.

This will reveal a list of 14 investment trusts listed alphabetically. This list’s running order can then be altered to reflect ascending or descending value by using the small direction arrows that accompany the ‘Price (bid)’, ‘Price (offer), ‘Total assets’ and ‘Market cap’ column headings.

If you click on the largest investment vehicle by market capitalisation (in this instance, Mercantile Investment Trust at approximately £1.6 billion) you can access more detailed information about Mercantile which is managed by JP Morgan Asset Management.

The 'Portfolio' button provides more detailed information on the fund. In the case of Mercantile, the website reveals that three quarters of the total assets are invested roughly evenly between companies in the consumer services, general finance and general industrials sectors with the rest of the portfolio’s assets being divided between consumer goods, technology, basic materials, healthcare and oil and gas.

Mercantile’s top holding (according to the more recently updated PDF fact sheet) is Irish support services play DCC at 2.3%, followed by housebuilder Berkeley Group at 1.9% while kitchens specialist Howden Joinery completes the top three at 1.8%.

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Other filters

Many share dealing platform providers will offer their fund screening services. For example, AJ Bell Youinvest has a list on its website detailing the top performing funds over the past three years. The list shows the annualised return over this period and whether the fund has been rated by Morningstar, which is one of the most respected sources of financial product analysis.

AJ Bell Youinvest also has a screening system for investment trusts, in particular. The facility, located at https://www.youinvest.co.uk/research-tools/screener/it, lets you search by fund company, Morningstar category and AIC sector classification. There are some more sophisticated search functions looking at risk levels, performance criteria over year to date and one, three, five and 10-year periods. You can also filter by the costs associated with the funds.

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Please note the value of investments, and any income from them can go down as well as up and you may not get back your original investment. AJ Bell Youinvest do not offer advice about the suitability of their products or any investments held within them. Should you require financial advice you should consult a suitably qualified financial adviser. Tax rules can change in the future and the tax treatment depends on your personal circumstances. Past performance is not a guide to future performance and some investments need to be held for the long term.

 

 

AJ Bell is authorised and regulated by the Financial Conduct Authority. The Evening Standard is not responsible for the content of this advertisement feature and any queries should be directed to AJ Bell.