Fund and investment tips for 2016
Witan Investment Trust
This is a diversified global equity investment trust, which has been running since 1909 and uses a multi-manager approach, with 12 third-party managers having responsibility for the six underlying investment mandates. It often utilises little-known but good- quality specialist managers such as Veritas, Lindsell Train, Matthews, Pzena and Landsdowne.This approach has worked well and performance has been very strong. It is an ideal buy-and-hold fund for long-term investors such as those investing for retirement or on behalf of children. I invest in this trust for my son’s Junior Isa.
HSBC FTSE All Share Index
Investors should have long-term exposure to the UK stockmarket and the advantages of investing in a tracker fund are lower charges, little likelihood of significant underperformance and no concerns about fund managers leaving.
The HSBC FTSE All Share Index fund aims to track the performance of the FTSE All Share Index, so the largest holdings will always be in the biggest companies listed on the London Stock Exchange and include the likes of HSBC, Royal Dutch Shell and BP.
The fund uses full replication of stocks for all of the major shares in the index [buying shares of each company in the index according to its relative weight in the index] and has an annual charge of just 0.07%.
The investment strategy for this fund is to invest in a concentrated portfolio of good-quality, large, liquid companies which make their money from repeatable business and then do nothing.
The fund manager is trying to buy today’s winners rather than tomorrow’s winners, but to buy them at the right price. He won’t try to time markets, hedge, trade frequently or panic.
This approach is proving very successful as the fund has given significant outperformance on the upside, while also doing a good job of protecting investors’ money on the downside.
JPM Multi Asset Income
This fund looks to achieve the best risk-adjusted income, which can be taken monthly, quarterly or reinvested for growth, by investing in a wide range of underlying assets including equities, fixed interest and REITs (real estate investment trusts, which invest in property).
It is ideal for a cautious investor as it targets capital preservation and low volatility by investing in around 1,500 underlying holdings.
Schroder Multi Manager Diversity
This is an ideal choice for a novice or cautious investor, essentially being a whole portfolio in one fund. It usually invests about one third in equities, one third in cash and fixed interest and one third in alternative investments such as hedge funds and commodities.
However, because the managers are worried about current asset prices, it has been very defensively positioned for some time. This should provide a good level of protection for investors.
BlackRock European Dynamic
This is an aggressive stockpicking fund, managed by Alistair Hibbert, who has proven himself to be one of the best European fund managers in the business. It has no benchmark constraints, as it seeks to find high-growth, under-researched companies, with the manager aiming to outperform by 5% a year, which is certainly a challenging target.
The fund could reward investors in a region where ongoing stimulus action from the central bank could boost European stocks generally.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.
A sophisticated absolute return fund that seeks to make money for its investors regardless of how global markets are performing. To that end, they invest in shares, bonds, currencies and commodities using a raft of investment techniques such as gearing, short selling, derivatives, futures, options and interest rate swaps. Most are based “offshore” and are not regulated by the financial authorities. Although ordinary investors can gain exposure to hedge funds through certain types of investment funds, direct investment is for the wealthy as most funds require potential investors to have liquid assets greater than £150,000m.