Build your own ISA
Building your Portfolio
Having made the decision that you want to invest into the stock market through a collective investment (as opposed to individual company shares), the next choice is selecting how you invest.
Traditionally the main route to stock market backed investment was through an investment fund (a portfolio of shares or bonds); but there are many different types of fund available and selecting the right one for you can be difficult. Funds also carry investment risk, in that the value of the assets within the fund rise and fall in line with the performance of the underlying investment. Some funds will be more risky than others and it is important that you consider how much risk you are prepared to take before investing.
You can also gain stock market exposure through investment products that offer a degree of capital protection (and therefore less risk to capital), often in exchange for a set return over a set period of time. These are called structured products (or sometimes Guaranteed Equity Bonds).
It may be the case that you will want some of your portfolio in funds and some in structured products. Generally, the more cautious you are, the more of your investment portfolio should be invested into lower risk investments, like cash , government gilts, corporate bonds or investments (such as structured products) with an element of capital protection.
There is no cast-iron rule of thumb as to how much of your portfolio you should invest in equity (stocks and shares) funds; but for someone with an average (moderate or balanced) attitude to investment risk, investing 50% into equities would be acceptable, with perhaps another 20% invested into potentially equity linked structured products – the rest may be allocated to bond and property investment funds, or cash.
The most important point to bear in mind is that whatever the size of your portfolio, you should try and achieve a degree of diversification: put simply, this means not putting all of your eggs in one basket.
Fund Selection
There are literally thousands of funds available for UK investors. Thankfully, the internet makes searching for, and finding information on, most funds a lot easier today than it used to be. But it can still be difficult to choose a fund you like.
To help you, Chartwell has produced a list of funds to help you identify funds in each of the main fund sectors that you might like to consider. We've called this list 'Funds in Focus' and have selected funds for inclusion based on a combination of a quantitative screening process and qualitative selection process based on fund manager meetings.
The quantitative screen considers 3 year past performance and discrete 12 month performance for each of the last 2 years; whilst the qualitative research focuses on identifying investment processes.
Finally, we have divided our Funds in Focus into different sectors, to assist you in finding the type of fund you are looking for. These sectors are:
- UK Growth – UK equity funds that provide exposure to a broad range of UK equities
- UK Aggressive – UK equity funds that ‘special situations’ or opportunistic exposure
- UK Equity Income – UK equity funds that generate an income
- UK Bond – UK funds that invest principally into UK corporate or government bonds
- Europe – European equity funds
- North America – North American equity funds
- Global – Global equity funds
- Asia Pacific/Far East - Asia Pacific/Far East equity funds
- Specialist – Emerging market funds or funds that invest into a specific asset (i.e. property)
More details of all of these funds can be found in our Funds in Focus section.
Capital Protection
Naturally, most of us know that stock markets can be volatile and that markets go through cycles: times where the general trend is for the stock market to go up and times when the general trend is the opposite. Over most observable time periods, in excess of 5 years, the UK stock market has delivered a positive return. Even still, you may be concerned about market timing, so you may prefer an investment that offers some degree of capital protection.
The past few years have led many people to feel that property provided a more secure form of investment. We have also mentioned that the outlook for UK interest rates is uncertain following the credit crisis. The last interest rate move was down; and many analysts believe, interest rates are set to go down and the housing market potentially in for a sallow period, where can I get a decent return on my investment?
One option is through the use of stock market linked investments, which also protect your capital; these are usually referred to as Structured Products (or sometimes Guaranteed Equity Bonds).
Structured products are very popular in France and Germany, more so than in the UK, where direct equity exposure is more common. Stock market volatility, however, is reminding UK investors of the benefit in having some or their entire portfolio protected in some way; and as such there has been resurgence in interest and issuance of structured products.
Chartwell have produced a guide to Structured Products that gives an overview of what to look out for, and some of the criteria we use when researching them.
Documents for download
Funds available through Co-funds
Contact Us
Email: theinvestorcentre@chartwell.co.uk
Telephone: 01225 823 915
Fax: 01225 448 733
Postal Address: Chartwell Direct and The investor Centre, Minerva House, Lower Bristol Road, Bath, BA2 9ER
Opening hours: Monday to Friday 0900 to 1700
For clients who feel they would benefit from receiving some professional financial advice before investing, please contact Chartwell Private Client who will be able to assist you.
Email: advice@chartwell.co.uk
Telephone: 01225 448732
