Tips on How to Pick the Best Managed Fund

With thousands of managed funds available, choosing a good one can be a daunting task. Following a few simple guidelines will assist in picking a good one.

Objectives and Timeframe

Part of the key to picking a good managed fund is first looking at your very own situation. A retiree may look for a fund with solid income (i.e. regular dividends or distributions and also a high yield), whereas a young newbie investor might be looking for long term capital growth. The former may be dependent on their managed fund for income, whereas the second might prefer a fund that re-invests dividends, potentially resulting in even bigger returns at a later point in time. The proportion of the investments a proposed managed fund might be (including other stock investments, property etc) also need to be regarded as.

Risk Profile

Sticking to the same example, a retiree who has accumulated substantial assets might opt to choose a managed fund with lower risk, to maintain those assets (by way of example, a diversified fund, or a fund that invests in just larger "blue chip" securities). Such a retiree's assets, if diversified, might allow for investment in a higher risk, but potentially higher reward fund (such as a sector specific fund, or a fund that only invests in small start up companies) if it makes up only a small overall proportion of their net wealth. Conversely, if a first time investor's proposed managed fund investment is likely to make up a high proportion of their savings, then investing in a lower risk fund may be more prudent. Risk just might be increased as savings are built up over time, and investments diversified.

Independent Research Houses

Every fund manager is usually going to sing the praises of their own products. Highlighting attractive investment returns over one year as compared to similar funds might not tell the whole story - the comparative returns over three or five years might not be as attractive. An independent research house can help in providing detailed analysis of a fund, as well as the fund manager's relative merits. Don't forget that fund managers pay independent research houses to research their funds.

Consistent Track Record

Get a fund manager and a fund that have provided reliable returns over a medium to longer term timeframe (more than 1-2 years). Short term performance is often anomalous. Performance also need to be viewed with regard to overall market conditions. A rise of ten percent in a year is excellent as opposed to bank interest, but very poor if the overall market has risen thirty percent.

Past Performance Is Not Necessarily An Indication of Future Performance

This common disclaimer does highlight the inherent risks in investing. One take away out of this is that it is necessary to look at past performance, but it is equally important to look at the reasons behind the figures. Are the results based on sound investment principles or fortune? Does the fund manager's outlook and strategy give you confidence in their ability to continue to provide you with good returns in the future?

Share trading can contain many pitfalls. Heed each one of the factors mentioned above, and you will give yourself the best chance of choosing a managed fund with positive performance.