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Anonymous

18 Apr 2019

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General Investing

What should i look out for before investing in a fund?

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Hariz Arthur Maloy

30 Mar 2019

Independent Financial Advisor at Promiseland Independent

1) Objective of the fund. See whether that's what you're intending to do. Value, growth, long-term, short-term, what kind of positions would the fund take, etc.

2) Size of fund. How much monies are they managing? Smaller funds can die out quite quickly and may not be able to make quick enough decisions. Bigger funds have economies of scale. Preferably funds bigger than 500m.

3) Performance. Both by calendar years, and 3/5/10 year annualized %. Though past performance doesn't equal future performance, it does give you an idea whether the fund manager's philosophy has been working. You want to find outperformance of their benchmark.

4) Geography/Sector allocation. If it's a region fund, you want to see where your money is. Whether they're too concentrated on any particular country, same goes with industries unless of course you're investing in a industry specific fund like healthcare or technology.

5) Top 10 holdings. Most funds will not disclose all of their choices mainly due to competition from other funds. But their top 10 choices will give you an idea of the kind of companies the fund believes in and if you personally think they're good choices, you'll be comfortable to know that you align with the fund.

6) Fees. How much are you paying the fund manager per year for managing your monies. This can range anywhere between a few percentage points to 2+%. Remember that performance posted are net of fees however.

7) Risk indicators. Some funds would disclose their Alpha, Beta, Standard Deviation, Average Volatility, Sharpe/Sortino Ratios. Do a quick read up on investopedia of these terms. You also want to make sure that the fund aren't closet index huggers. Because you can generally buy the index tracked ETF for a significantly lower cost.

I've linked my favourite fund to give you an idea of what kind of fund performance and clear objective you should look for. Oh and make sure to read the fund prospectus as well.

https://www.fundsmith.co.uk/docs/default-source...

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