Monday, October 19, 2009

Unit Trust Fund Screener


There are thousands of unit trust funds out there, millions perhaps. How do you sift through the garbage to get to the gold?


We all know that it is simply impossible to go through every single fund factsheet to find out which are the best funds out there. Ask a financial adviser and he will probably tell you which funds he recommends and why.

But is there a better way to go about making such an investment decision?

How do you go about choosing which unit trust fund to invest into?

Today, I will let you all in to a little secret which few know about.

A Unit Trust Fund Screener

Lipper Leaders has a fund screener that allows one to screen a whole wide range of unit trust funds based on a few metrices. But before you go off to try it out, let me explain to you what this metrices are based upon.

Lipper Leaders screens funds based on 4 essential metrices. They are as follows:

1. Total Return. Total return denotes a fund that has superior returns when compared to a similar group of funds. This rating best suits investors who want the best historical returns without looking at risk. This measure however might not be sufficient for investors who want to avoid downside risk.

2. Consistent Return. This identifies a fund that has provided relatively consistent performance and risk adjusted returns when compared to a similar group of funds. This might be for investors who are concerned about consistent performance of the fund rather than total returns that the fund gives. Certain funds however will remain more volatile than other funds based on the market sector they are invested into.

3. Preservation. This identifies funds that have been able to preserve capital in a more superior manner in various types of market when compared with other funds in its asset class. This helps limit any downside risk that an investor does not wish to take.

4. Expense. This identifies funds that have managed to keep its expenses low relative to its peers. This is best for investors who want to minimise their total costs when choosing a fund.

But You Still Need to Consider This....

So I have shared with you a very superior unit trust fund screener that will actually help you make a more informed decision when it comes to choosing which funds to invest in. This works well even if you are choosing which funds to invest in for an investment linked plan that are sold by various insurance companies in Singapore.

A good way to test your insurance agent or financial adviser next time will be to ask them WHY they are recommending certain funds to you.

Many times, you will get the answer like"Oh..this fund reached a price of $5 over dollars in 2007. Now it is only at $3, the price is very cheap."

Such financial advice is lame and if anybody ever gives you such advice, RUN!

Past performance of a fund does not guarantee future performance of the fund.

This is what we also need to take into consideration when using the Lippers Leaders Fund Screener. Just because a fund is ranked 5 for all the ratings does not mean that it will give you stellar returns in the next few years. Rather, it just gives you a way to make a much more informed decision.

To Invest in Unit Trust Funds or Stocks?

Should one invest in a unit trust fund or should one invest in stocks? Yes, I know I have brought up another contentious issue and there will probably be no end to the debate.

Unit trust funds are known to charge fees and costs that many people say are not worthwhile. Lots of "experts" out there are thus advising the man on the street to invest in stocks directly so that they need not pay expensive charges that these unit trust funds charge.

Again, I at Sg Financial Freedom will like to take the stand and say that whether a person decides to invest in unit trust or stocks all depends on the person's situation.

A person who has no time to track his investments and has totally no clue about investment should perhaps invest his money in unit trusts rather than let his money sit in the bank and rot.

A person who is savvy in his investments will most probably not opt to invest in unit trusts if he is able to get decent returns from the stock market.

I will still like to think that since these fund managers are working at their investment jobs full time, we ought to give them some credit and it might not do us any harm to just invest a portion of our money for diversification purposes.

Afterall, if you invest your own money, you are your own fund manager. How certain are you that you can beat a person who does it as a 8 to 5 job full time while you might only have the time to monitor your stocks say 10% of your time?

Sometimes, it might also be necessary to invest into unit trusts so as to get exposure to certain markets like China or into the commodities sector. It might be difficult for an individual to buy into so many stocks which a China unit trust fund could probably do more efficiently and at a lower cost.



The author invests in both stocks and unit trusts. He believes in his fund management skills but has decided to diversify some of this risk by letting others manage his funds for him as well. Afterall, he can never be too sure that his stock picking skills are always excellent.


You can visit Lipper Leaders here.


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