Investment Funds

An introduction to funds in the UK, how they work, and how to find the best fund for you.
What is an investment fund?

An investment fund pools together money from lots of clients.  An investment manager then invests that money in accordance with the investment strategy as set out in the fund documentation. Funds can invest in any type of asset: stocks, shares, bonds, commodities and even other funds.

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Why invest in an investment fund?
Trusting experts to deliver for you

Trusting investment experts

A fund manager is appointed for each fund to invest its capital and deliver a return for investors. The fund manager will usually consist of a team of investment experts, who should have relevant experience and a track record in accordance with the investment strategy.

Passive

Once you have chosen a fund, you will be able to sit back and relax as the investment manager undertakes the work of sourcing, reviewing and selecting each investment for the fund. 

Clear objectives

Each fund should have a well defined investment strategy. This should give you a clear indication of the nature of the assets to be held by the fund and the risks your money will be exposed to.

Convenience

By selecting a handful of investment funds you can quickly and easily build up a well diversified investment portfolio.

10 things to consider when choosing an investment fund

A helpful checklist to find the best investment for you.

Asset allocation
Selecting the asset to invest in.

1. Portfolio diversification

Most investment portfolios consist of a mix of shares (equities) and bonds. You may want to looks for funds that invest in these, or look for alternatives such as property and commodities to invest in, to create a more diversified portfolio. 

2. Risk vs Return

What level of risk are you willing to accept - funds will put your capital at risk, and you need to be prepared to lose money as well as make money. Riskier funds may target a higher return, but could also result in larger losses.

3. How long do you want to invest for?

Fund investments are best viewed over a minimum 3-5 year period. If you are looking for a 'quick win' then funds are unlikely to be the right choice for you.

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Fund selection
Finding the best fund for your chosen asset class.

4. Team

Review the biographies of the senior Investment Team - do they have a good level of investment experience (ideally a minimum of ten years), and are their interests well-aligned to you - for example, do they invest alongside you in the fund.

5. Track record

How long has the fund been operating (ideally three years), and has the performance been in line with the stated target.

6. Fees

What are the trading fees - these are paid to the fund manager, or to intermediaries such as brokers and investment platforms.  Initial fees tend to be higher for longer term funds, to motivate investors to keep their capital invested in the fund for a minimum period of time.

Funds will also charge an ongoing annual management fees. These should be low for trackers funds (e.g. 0.25%) but may be higher for funds that need to source and manage the underlying investments (e.g. 2% for private equity funds).

7. Research and reviews

Once you've done your own diligence on the fund documentation and presentation materials, see if you can corroborate this with third-party reviews, preferably from professional companies such as Morningstar, Defaqto, etc.  Consumer reviews such as Trustpilot are less likely to provide you with meaningful insights.

Fund structure
The fund wrapper can impact your risks and returns.

8. Tax efficient wrappers

You may want to restrict your fund selection to those that can fit within specific tax-efficient wrappers. These can range from SIPP and SSAS for pension investors; ISAs for everyday investors and IHT (Inheritance Tax) for estate planning. 

Choosing a tax wrapper should follow the investment decision, not lead the investment decision.

9. Listed or unlisted

There are more and more specialist unlisted funds. These provide less liquidity than a listed fund; but can reduce the daily price volatility and also be a good source of uncorrelated returns. 

Most unlisted funds are restricted to High Net Worth (HNW) investors and Sophisticated investors for regulatory purposes.

 

10. Investment instrument

Funds are usually structured in three ways: as a Company, as a Unit Trust or as a Partnership. The structure will impact how your return is reported and paid to you, and possibly have some tax implications.

There isn't a 'clear winner' in terms of the best fund investment instrument - it will be chosen by the fund manager to be attractive for investors and appropriate for the asset class.

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How to find the best investment funds

There are thousands of investment funds in the UK alone. Finding the best ones which are suitable for you can be a time consuming task. To simplify your search, funds are split into two groups: listed and non-listed funds.

Listed funds

Listed funds will be traded on a stock exchange. This may be on a main-stream stock exchange such at the FTSE or smaller exchanges such as Ireland or even the Channel Islands (e.g. Guernsey's ISX).

Every exchange has a list of funds available for investment, and will provide a price (or quote) for each one. In the UK, the FTSE and AIM are the two most popular exchanges for funds.

Listed investment funds should have greater liquidity than non-listed funds, but may be more volatile in terms of daily pricing.

Unlisted funds

Unlisted investment funds are not listed on a stock exchange. Unlisted funds will be available as a financial promotion either through an intermediary - such as a wealth manager - or directly from the investment fund manager themselves. 

Unlisted investment funds are increasing popular for specialist fund managers, and they tend to be more cost effective than listed funds if the fund has less than £250M of assets under management (AUM).   

Unlisted funds tend to be restricted, so that retail investors cannot typically invest in them. 

TAGRET 6% P.A. FROM LOANS SECURED AGAINST UK PROPERTY
The BondMason Property Lending Fund

The BondMason Core fund manager has three full years of delivering a consistent return of 6% p.a. from loans secured against UK property.

Underlying loan profile facts and figures
Borrower use of proceeds: Refurbishment
Loan-to-value: 56%
Average term of loan: 6 - 12 months
Geographic diversity: Across the UK
Average loan size: £340k
Data correct as at 9 October 2018

Nothing on this page should be construed as advice. Your capital is at risk. You may wish to seek Professional Advice. See our Terms and Conditions.