A fund is a collection of investments such as shares, property, fixed interest and other financial instruments, the purpose is to spread the investment risk.
Each fund is given a name which is intended to describe the holdings within it, for instance a European Equity fund would invest in European shares. The way in which a fund is taxed determines whether it is a Pension, PEP, ISA, Off-Shore Bond, Unit Trust, Open Ended Investment Contract, Insurance Policy etc..
The product provider is a company such as Norwich Union, Fidelity or Scottish Widows which creates the investment ‘product’ such as a pension etc.. It is within these products that a range of funds are made available for an investor to select from. The fund range can be quite extensive running to many hundreds. Typically the choice would include North American Equity, European Equity, UK Equity, Far East, Japan, Emerging Markets, Property,
A mathematical calculation is run every few days to determine the ‘best’ performing fund within any product range (the Fundrider Choice), the calculation is then run for a second time leaving out the ‘best’ fund. The two funds which come out top are then measured against each other in a graph. The fundrider choice changes when another fund begins to outperform it. Please Note that the fundrider choice is the top performing fund arrived at by the calculation being used and it takes no account of Volatility, Geographical, Ethical or other considerations such as the size of the fund, risk rating etc. It is purely performance based.
You are able to change the investment selection within your Pension etc and can have money in more than one fund. Selling one fund and buying another is known as ‘switching’. The cost of switching varies between companies but as a general rule the first switch in a policy year is free and subsequent switches cost around £20. Check with your product provider especially for Unit Trusts and OEICs.
An IFA is an Independent Financial Advisor. An IFA is your agent as opposed to a company agent and being independent they can advise over the whole range of companies in the investment industry. They are usually paid a commission from the company where your business is placed but they often forgo commission and work for a fee. They are able to advise on the suitability of a fund where you do not want to follow the Fundrider Choice with all your money. A good IFA is well worth their cost.
Within the range of funds available (see Funds) there is a facility where you can be out of the markets and invested in a cash or deposit fund. This is similar to a Bank or Building Society account. Switching costs do not normally apply to money moving from a cash fund back into the markets but check with your product provider.
On the graphics page you will find two graphs side by side. The Left Hand Side one plots the actual performance of the two top funds and two others can be added if required, the Right Hand Side one plots the difference between them ( consider two people playing golf, if one has taken 34 shots and the other 31 he is said to be 3 up, that being the difference between the two scores), The graph is over a year and the average of the difference is plotted a shorter term average is also plotted and to differentiate between the two one is called a long term average and the other a short term average.
Whilst waiting for a long term average to turn over you can lose much of your gain and so an early warning is given to alert you to the situation. The warning is given when the price drops by about 5%. In order to stop losing you simply sell it and the signal is known as a Stop Loss.
