As so much can change over the time you invest, what was once a ‘good’ fund for you may no longer be the case – and it might not be working how it’s supposed to.
So how do you know if you’re invested in a good fund? This can be a difficult assessment to make, because what is a good fund for one person may not be the case for another.
It all depends on a number of things, including your own objectives. So where do you start?
First things first, is your fund doing what it’s meant to be doing? Each fund works differently and has its own objectives. It’s essential to have a clear understanding of the fund’s goals from the start – and it’s also worth checking if it is still meeting them.
It’s really important to look at a fund’s performance in line with its objectives. A cautious fund, for example, is unlikely to achieve the same returns as a more aggresive fund (ie one with a higher share content in positive market conditions). A good time to really judge this type of fund would be when markets fall – to check if it’s working how it should be.
The higher the cost of a fund, the more it will reduce overall returns – it’s as simple as that.
That said, paying a higher charge could still feel like good value for money if you’re receiving solid overall return in line with what the fund is expected to do. This is why it’s so important to check if the fund is fulfilling its overall objectives.
So after looking at the fund’s objectives and the charges you’re paying, it’s time to look more closely at performance – so you can establish whether you’re achieving the returns you’re expecting.
A key consideration when assessing performance is why the fund has done well. Due to recent rising markets, some managers have seen a positive run in fund performance – but how much of that has been from the favourable market backdrop?
Scott Ashworth, Senior Technical Adviser at Skipton said
When it comes to performance, one crucial point to remember is ‘do not chase past returns’. For example, just because a fund has a good long-term track record doesn’t mean it will continue to do well.
“By the time a fund has become ‘flavour of the month’, performance may have already peaked, or even worse, the fund which has been chosen may be at the point where value has started to fall.”
4. Fund Manager
Particularly if you’re in an actively managed fund, the manager plays a vital role, as the style or strategy they take can heavily contribute to a fund’s ability to fulfil its objectives. Should a manager leave, the fund’s customary way of working could change – and impact on returns and level of risk.
Changes in fund management can often happen. One of the most high profile examples of this was Neil Woodford, who left Invesco Perpetual in 2013 to set up his own investment fund company. This led to many investors facing a crucial decision – whether to stay with Woodford and follow him to his new fund, or remain in the existing fund, operated by a replacement manager.
Just like in any walk of life, fund managers can change employers or choose to take up new opportunities. If a manager has been primarily behind a fund’s success and then decides to leave, this could have huge implications on the fund’s performance going forward. For customers who are in our Monitored Informed Investing service, this is something we monitor and update them on.
This isn’t a comprehensive list and there are many other complex considerations which you can take into account, particularly when assessing a fund’s performance history.
As well as the above factors, it’s also important to assess your risk appetite and whether you’re still comfortable with the level of risk your investments are exposed to. You also need to consider your personal investment objectives – which may now be different from when you initially chose the fund.
Assessing these areas can prove highly complex, and reviewing your own funds can be difficult to do. This is why we’re here.
Through straight-forward, face-to-face financial advice we can talk through anything you’re unsure of, help you make considered decisions, and provide tailored recommendations.
We’ll take a comprehensive look at your investments, current situation and listen to your financial needs and objectives. There is no pressure to act on our advice – you will have all the time you need to make a decision.