Portfolio Monitor - A C Financial provides in depth investment research and discounted investment charges on property bonds distribution bonds With Profit Bonds and stakeholder pensions, A C Financialprovides its much acclaimed property bond guide, distribution bond guide and stakeholder pension guide

Portfolio Monitor

Investors in Unit Trusts, OEIC's, Pep's and ISA's often face disappointment as popular funds rarely live up to historic performance. Indeed our own research indicates that the most popular funds, in terms of new investment by the public at the end of calendar years, fail to live up to expectations in the following year. Conversely, the least popular funds, comfortably outperformed. This research is available here.

Why is successfully selecting funds so difficult

We are all human and suffer from the two emotions of fear and greed. When markets are low, fear become the overriding emotion as we see how a fund/market has fallen and fear that it will continue - this often deters the investor from taking advantage of a buying opportunity!

When markets are high, and rising, greed overtakes the investment process and the only fear to be observed is that of losing out on further gains - this encourages a frenzy of investment activity at a time when sensible advice might be to steer clear!

Every time I buy a fund it seems to fall

The amount of times we have heard this comment is immeasurable. It is a fact of life that, left to there own devices, many investors will buy at the top of markets, and more often than not, wait many years for a recovery at which point they decide that equity investment is not for them. Markets and sectors tend to be cyclical and therefore successful investment depends upon knowing where in the cycle a sector is.

The most dangerous practise is buying a sector (not defined managed) fund on the basis of an advertisement. Marketing departments of fund managers and some advisors know that investors are generally only attracted to high past performance, and therefore, they usually tend to market funds that have had a recent history of unusually high growth. Often, this is precisely the time that a prudent investor would be avoiding such funds.

What is the answer?

Because of the emotional stresses of investing it is extremely difficult for most investors to make objective decisions - the fear of loss, and a tendency to continue to hold funds with large gains, without taing some profits, being the two most difficult ones. When a trusted advisor who genuinely understands the foibles of the market is used, the investor has a greater chance of avoiding overbought funds, and might even be persuaded to invest in oversold areas where the greatest potential for gain might exist.

Our 'Portfolio Monitor' service aims to avoid these problems and can be accessed here.