CISI - Financial Products, Markets & Services: Topic - Investment Funds Lesson: Introduction To Investment Funds
CISI - Financial Products, Markets & Services: Topic - Investment Funds Lesson: Introduction To Investment Funds
cisi.org
What are investment funds?
Clients
Want to invest money to meet
particular objectives
Funds investors
Securities
Advisers
Houses Consultants
Investment
Pension Insurance funds
Banks
funds/Local
authorities/C
harities
Collective investment
schemes pool the Investing in funds can be tax efficient. Many funds do not
resources of a large Tax pay any tax on the income and gains they generate, and the
number of investors, with deferral investor only pays tax when she sells the investment.
the aim of pursuing a This is known as ‘tax deferral’
common investment
objective.
cisi.org
Investment Styles
There are lots of different types of investment funds.
Objectives Styles
Each fund will have its own set of Each fund will be managed according to
objectives and it will be made clear the style adopted by the Fund Manager
the types of financial assets they to meet the objectives of the fund.
will invest in. ‘Style’ refers to the approach taken to
choosing the investments for the fund.
e.g. To invest in the shares of UK
companies with above-average Investment styles can be:
potential for capital growth.
‘Active’ or
‘Passive’
cisi.org
Active Management
Top-down approach
Manager focuses on economic and industry trends rather than the
prospects of particular companies e.g. Focus on growing economies
such as China
Bottom-up approach
Analysis of a company’s financial statements, strategy and
management as a priority.
e.g. Analysing a company’s net assets, future profitability and cash
flow
Momentum Investing
Growth Investing Value Investing Picking shares where the price
Contrarian Investing
Picking shares of Picking the shares of is rising on the assumption it Picking out of favour shares
companies most likely companies that are cheap will continue. that may have value the rest
to grow in medium and (under-valued) to their of the market may not have
spotted.
long term profits or cash-flow
cisi.org
Passive Management
Few active fund managers actually outperform their
benchmarks, with many doing worse.
Passive Active
Management Management
‘Core’
Core-satellite ‘Satellite’
is the name given to around management Is the name given to the
remainder of the portfolio
70-80% of the fund’s
portfolio which is invested which is invested in
in index tracking funds to specialist actively managed
minimise risk of funds or individual
underperformance securities
cisi.org
Range of Funds
There are almost 2,500 UK domiciled authorised investment funds available to investors
There needs to be a way to classify them so that investors can compare funds with similar
objectives.
Providing ‘Income’ or
Providing ‘growth’ or
‘Specialised’ funds if they fall outside the previous two
Each of the sectors contains funds investing in similar asset categories in the
same stock market or same geographical area e.g. UK gilts or UK Corporate
Bonds
cisi.org
Range of Funds
A useful example of how the
IA sectors work can be seen
by looking at bond funds and
how the content of each
differs:
cisi.org
Authorised vs. Unauthorised Funds
The authorisation of an investment fund has nothing to do with it being illegal or illegal to buy into it or use
it but is related to who the fund can be marketed to. Authorisation is granted by the regulator – The FCA