James Crux, SHARES, 20 June 2024:
Whereas passive funds aim to track the performance of a key benchmark or index, active funds are run by a professional fund manager who selects what goes in the portfolio with the aim of outperforming the market..
WHAT IS THE FUND’S STRATEGY?
One of the major advantages of funds is they allow you to cost-effectively build a diversified portfolio. The many thousands of funds available to the retail investor allows you to choose a particular geographic market, a range of industry sectors or a specialist asset class such as bonds to suit your investment objectives..
A key decision to make is whether to invest in a ‘growth’ or an ‘income’ fund. The most suitable option will depend on your investment goals, risk tolerance and also your age. Growth funds hold shares in companies that are expected to grow at a faster rate compared to the broader stock market heading into the future, whereas income funds seek to provide investors with a source of income right now through dividend payments..
JUDGING PERFORMANCE & COSTS
Close scrutiny of past performance can help you to understand the characteristics of a fund and the pedigree of the manager making the asset allocation decisions, although past performance isn’t a reliable guide to future performance..
WHERE CAN I FIND IDEAS?
There are fantastic online sources of information on funds and investment trusts to help with the selection process. For those beginning with funds, the Investment Association’s website is first port of call for the lowdown on fund sectors and statistics, while the AIC website is jam-packed with data, documents, articles and research to keep you informed.
Using data from Morningstar, the AJ Bell website enables you to filter funds and investment trusts performance and the site is flush with fund-related articles and fund manager videos. Here you will also find the AJ Bell Favourite funds list, the platform’s pick of funds offering the combination of excellent fund management, low charges and best long term potential performance. Trustnet is a fantastic resource for factsheets and fund performance data and topical articles, while investment trust aficionados should check out the Kepler Trust Intelligence and QuotedData websites for in-depth research notes.
Read more here