Here is a guide to follow when investing in managed funds.
I will only talk about the best indicators of future returns, if you would like some more info please ask and i will be happy to oblige when i have the time. I will also post some managed fund i think are pretty solid.
1. The most reliable indicator of future returns or performance in the long term is FEES. That is the Management Expense Ratio (MER). Now more commonly referred to as Indirect Cost Ratio (ICR). The fees that are charged on managed investments btw managers accounts for almost all of variations in returns over time. If you think about it it makes perfect sense. Most managers or teams aren't going to be much smarter than the next team so if they charge more you're going to get less.
2. Asset Allocation. This is how they allocate or split the money to asset groups. This usually shows up in the short term performance data, and is less pronounced long term. Again think about it logically, a fund that has a higher allocation to cash and bonds will generallyunderperform a fund with a greater allocation to riskier assets like shares in the long term-----> i stress the term generally.
3 Manager skill. This is basically how good the manager or managers are at picking stocks. Most of the time they are no better than you or me, and you have to be careful to always monitor what is going on at the company that runs the fund you invest in. Sometimes funds change their mandate and aren't investing the way they said they would or good managers move on or get poached.
4 Tax concerns. Somtimes this might be more important than 2 or 3 depending on what you want and your tax rate. Again thinking about it logically the tax efficiency of the fund will efect post tax returns, which is really what you are trying to do with any investment and that's maximise returns after tax. Funds make distributions just like stocks pay dividends. So if you are on a high tax rate it's better to be in a fund that pays distributions from longer term discountable gains as opposed to short-term distributions. The crooks will churn portfolios and buy and sell stocks all the time which will eat into your after tax returns.
----> Again i stress FEES are usually more important than 2, 3 and 4 combined.
