Our fundsare selected using three criteria: performance, quality and how easy it is to transact. We use the Star Ratings awarded by Morningstar and Standard & Poors as guides to past performance. We use the ‘Manager Ratings’ of Citywire and the research of independent investment advisers, Churchill Investments plc, as guides to the quality of management groups and individual managers.
We also restrict our fund selections to those that can be bought and sold inside popular ‘fund supermarkets’ such as Fidelity FundsNetwork, Cofunds, Egg, Abbey and so forth.
This combination of selection methods means that many funds which appear at the top of recent performance tables will not be included in our best buy lists. Our methods are designed to try to eliminate funds that have erratic or unreliable performance or where the costs of transaction are high.
There can be no guarantee that our methods will identify the top-performing funds of the future, but we believe that over a period of several years our selected funds will do better than average. Owning funds that provide consistently above average returns over time is better than owning a fund that is the top performer in its sector one year but underperforms after that.
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What sort of funds do we research? Our fund selections include unit trusts and open-ended investment companies (OEICs). They do not include investments trusts or offshore funds. Both unit trusts and OEICs provide some access to investor protection, have clear charges and are governed by
regulations that prevent the fund manager from playing fast and loose with your money. Other types of funds may deliver higher returns (but only by taking on much more risk) or less risk (but only by delivering lower returns).
Fund supermarketsIf you buy unit trusts or oeics direct from the investment managers, you will usually pay between 2.5% and 5% of the sum invested as an initial charge. If you buy the same units through a fund supermarket or discount broker, you may pay as little as 1%. Hence it almost always make sense to use fund supermarkets/brokers for your purchases.
With fund supermarkets, you get other advantages. All your units are held electronically, and you get one consolidated statement for all your holdings, cutting down on paperwork. You can switch your holding from one fund to another much more easily and at lower cost within a supermarket.
Fund supermarkets and brokers may offer you newsletters and fund information, but this does not count as advice within the current regulatory system. You are transacting on an ‘execution-only’ basis and are responsible for your own investment decisions. If you want personal investment advice, you will have to speak to an adviser and must expect then to pay higher charges.
Our Model Portfolios can help you choose your fundsSelf-Select ISAIf you invest in unit trusts and oeics through maxi-ISAs, you could end up with several ISAs with different fund managers. A better way is to use a
self-select ISAwhich allows you to buy funds run by different investment managers. This allows you to switch your holding without having to change your ISA. Most self-select ISAs do not levy any charges over and above those of the funds you hold within them.
How much risk?All investments involve some risk. Most unit trusts and oeics invest in shares or in bonds (fixed interest securities). All funds investing in shares share similar risks: while a specialist fund investing in technology shares may go up and down faster than one investing in the UK’s top 100 companies, they will both go up when share prices in general are rising and fall together when share prices are falling. If you do not feel comfortable with the risks of the stockmarket, then perhaps stockmarket funds are not for you.
Our Model Portfolios can help you choose your fundsInvesting costsMost unit trusts and oeics levy initial charges of between 2.5% and 5%. This charge is deducted from your investment. Part if it- up to 3% is paid as commission to agents such as stockbrokers and independent financial advisers who introduce business to fund managers. You can pay much lower charges if you use a discount broker or fund supermarket. Unit trusts and oeics also levy an annual charge, usually between 0.75% and 1.75% a year, for managing your money. Most managers pay a part of this, up to 0.5%, to introducing advisers.
AdviceIf you want personal investment advice you will have to pay for it. While some advisers charge fees, the conventional basis of charging is through commission on the funds you buy. Advisers collect up to 3% commission, but will usually rebate part of this on a sizeable investment. You should expect to pay an independent financial adviser £100 to £150 per hour of their time. Though the quality of advice varies, in general you will get better advice from an independent financial adviser than from an adviser employed by a high street bank or building society.
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