“Would you recommend this fund? How would you assess this provider’s performance?”

Often, we receive inquiries from clients who want to know if we would recommend a specific Investment fund or provider. While these questions may be valid, they’re a bit like asking someone about the taste of their microwave meal when they’re simply wheeling around an empty Tesco shopping trolley. 

In this analogy,  the providers are the shopping trolleys – they’re all similar with varying costs. But these differences in cost have no significant impact on performance. Ultimately, it’s the contents you place inside the trolley – the funds, geographical location, asset class, risk, and more – that truly shape the performance and outcomes you can expect.

In this blog post, we’ll examine what Investment Funds are through the lens of a specific fund we use (for anonymity, let’s call this fund X). We’ll also delve into our approach to selecting the ideal funds for investment here at Applewood Independent. 

How investment funds work

Fund X is a UK equity income fund which means that its primary aim is to generate both returns and a decent yield. Now, investment funds are required to facilitate their main goal  – what it says on the tin  – with at least 80 per cent of the money that’s in the fund. 

This means that a fund MUST invest at least 80 per cent of its assets consistent with its name while the remaining 20 per cent may be put into any other type of investments. For example, a fund that incorporates the term “growth” in its name would have to allocate at least 80 per cent of its assets towards investments in growth stocks.

Fund X fulfils this requirement, with approximately 95 per cent of its holdings consisting of FTSE 100 assets. What’s more, the fund carries a fee of around 0.75 per cent per annum, which falls within the industry’s standard range.

Having established these key details, some of the crucial questions to ask when evaluating investment funds are: what does this fund do? What specific assets or sectors does it invest in? 

How we manage our risk portfolio 

At Applewood Independent, our investment approach begins with establishing a comprehensive overview. Once we have a clear understanding of the big picture, we then break it down to a specific geographic location. For instance, if you have been following our blogs and podcasts for a while, you will have noticed our keen interest in the current value within the UK domestic market.

Subsequently, we may allocate 60 per cent of an average-risk portfolio to the UK stock market. This 60 per cent allocation is then diversified across multiple funds that specialise in the UK market.

It’s important to note we would never advise placing 60 per cent of your money in a single fund. Typically, we limit our allocation in any single fund to no more than 10 or 12 per cent to ensure appropriate diversification and mitigate risk.

Fund X and the current market

Over the past few months, we have actively engaged in fund manager meetings, consolidating viewpoints and reaching a general consensus. 

During one of such meetings, we ran an analysis on Fund X and arrived at a noteworthy finding: Fund X currently boasts a six per cent yield. It’s important to note that yields are typically quoted on a 12-month rolling basis. This means that this six per cent yield represents the dividend generated in the preceding 12 months.

Does this scream value?

It certainly does, especially when taking into account that the historical average for the UK market stands at four per cent. Based on our analysis and other looming factors, we expect that the yield could potentially reach eight or even ten per cent this year. What’s more, the viability of this particular fund does lie in consensus with our viewpoint of the UK. 

If certain variables such as inflation, interest rates, cost of living and political stability become more favourable, they will help mitigate uncertainties in the UK. This, in turn, is likely to attract greater interest from overseas investors in funds like Fund X. Consequently, the increased demand would drive up its share price, presenting potential for further growth. 

A reminder for investors

As always, we’re passionate about finding value, funds and performance that nobody else can find, and we’ve certainly found it over the last three years.

At the end of the day, making informed decisions is crucial to unlocking exceptional performance. While many people are still fixated on charges, true performance stems from selecting the right fund and getting it right ahead of time before it realises its full value. 

Want to find out more about investment funds and our approach to selecting the right ones? Listen to our latest episode of A Dab Of Investment for further insights and tips.

In the meantime, if you’d welcome our input, expertise and experience, please get in touch by emailing me at [email protected]. 

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.

Past performance is not a guide to future performance.