Picking an Australian equities fund?
By Tim Hewson
25 September 2009
Here are some tips on things to consider when picking an Australian equities fund:
1.Invest long-term. Take the long haul to mitigate short-term volatility, normalise returns and also provide a greater chance of positive returns. Set an appropriate timeframe and investment objective, and understand your tolerance for risk.
2.Don't be too quick to judge. Not all Australian equity funds are the same, and the fund names don't always reflect what the fund invests in. Dedicate the time to do your research and always read the Product Disclosure Statement (PDS).
3. Invest objectively. Make sure the investment objective of the fund is consistent with your own. Where possible, drill into the fund to ensure you understand what drives the manager's investment strategy and decision making processes.
4. Growth or Income? If seeking income, consider a fund focused on buying stocks which pay high dividends, not just those focused on generating capital growth.
5. Mix and match. It's crucial that you mix funds with complementary investment strategies and styles. Growth managers will deliver returns from market momentum, but when the market changes, value managers offer long-term protection.
6. Active or Passive? Are you tracking an index or wishing to outperform the market? Consider combining active and passive funds to improve diversification. Just remember, more active fund managers typically come with higher fees and potential Capital Gains Tax.
7. Benchmark. Track the historical performance of a fund to determine whether the fund managers are delivering relative value compared to peer funds.
8. The importance of past performance. It's not always a true indicator of future performance, but provides a litmus test to determine whether the fund has achieved its performance objective and a consistent investment strategy.
9. Making sense of the mix. Ensure your mix of investments make sense, are diversified and consistent, but remain complementary to the rest of your portfolio.
10. Seek value for money. Make sure you are getting relative alpha if paying higher management fees to an active manager. The same principle also applies to the higher fees generally charged by specialists and boutiques. Importantly, wholesale funds are generally cheaper than retail funds, and can save you an average of about 1 per cent per annum.
For investors keen to get back into the market, RaboPlus has developed some really cool tools to help you search, sort, research, select, blend and buy managed funds. So check out the fund selector, our fund performance calculator, the dollar cost averaging calculator and our investor centre for more information as well as tips on investing in managed funds.
Happy investing!
Important note: Before making any financial or strategic decision you should obtain professional advice which takes into account your personal circumstances and objectives. This article is not professional advice and does not take into account your personal circumstances or objectives.
The views and opinions expressed in this article do not necessarily represent the views and opinions of Rabobank Australia Limited. The persons involved in its preparation and distribution and their related persons disclaim all liability for any loss or damage suffered due to the use or otherwise of the information.
