How To Select The Best Managed Fund

With literally thousands of managed funds available

, selecting a good one can be a daunting task. Following a few simple guidelines will assist in picking a sound one.

Objectives and Timeframe

Part of the key to picking a good managed fund is first looking at your own personal situation. A retiree may look for a fund with solid income (i.e. regular dividends or distributions along with a high yield), whereas a young first time investor might be looking for long term capital growth. The former might be reliant on their managed fund for income, whereas the latter might prefer a fund that re-invests dividends, potentially leading to even greater returns at a later point in time. The proportion of one's investments a proposed managed fund is likely to be (including other stock investments, property etc) also needs to be considered.

Risk Profile

Staying with the same example, a retiree who has accumulated substantial assets might elect to choose a managed fund with lower risk, to maintain those assets (for example, a diversified fund, or a fund that invests in only larger "blue chip" securities). Such a retiree's assets, if diversified, might allow for investment in a higher risk, but potentially higher reward fund (such as a sector specific fund, or a fund that only invests in small start up companies) if this makes up only a small overall proportion of their net wealth. Conversely, if a first time investor's proposed managed fund investment is likely to make up a high proportion of their savings, then investing in a lower risk fund may be more prudent. Risk may be able to be increased as savings are built up over time, and investments diversified.

Independent Research Houses

Every fund manager is always going to sing the praises of their own products. Highlighting attractive investment returns over one year as compared to similar funds might not tell the whole story the comparative returns over three or five years might not be as attractive. An independent research house can assist in providing detailed analysis of a fund, and also the fund manager's relative merits. Bear in mind that fund managers pay independent research houses to research their funds.

Consistent Track Record

Look for a fund manager and a fund that have provided reliable returns over a medium to longer term timeframe (more than 1-2 years). Short term performance can sometimes be anomalous. Performance also needs to be viewed with regard to overall market conditions. A rise of ten percent in a year is great compared to bank interest, but very poor if the overall market has risen thirty percent.

Past Performance Is Not Necessarily An Indicator Of Future Performance

This common disclaimer does highlight the inherent risks in investing. One take away from this is that it is important to look at past performance, but it is equally important to look at the reasons behind the figures. Are the results based on sound investment principles or good fortune? Does the fund manager's outlook and strategy give you confidence in their ability to continue to provide you with good returns in the future?

Share Trading can contain many pitfalls. Heed each of the factors listed above, and you will give yourself the best chance of choosing a managed fund with positive performance.

by: Hayden Kerr

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