What is an investment fund?
When you invest in a fund, your money is pooled with other investors to buy a range of assets such as shares, bonds or property. Rather than owning these assets outright, you own units in the fund – which can go up or down in value depending on the success of the underlying investments.
Funds can focus on a certain sector or regional economy. For instance you might choose to invest specifically in technology businesses, utility firms or in overseas stock markets. However, many funds will invest in a range of assets to help diversify the risk.
All the trading and overall management decisions beyond this point are down to the Fund Manager, who runs the fund on behalf of the investors.
As the fund is managed for you, you don’t need to be an experienced investor to invest in a fund - but you will need to pay a management charge each month or year.
Remember, when you invest in funds your money is at risk - and you could get back less than what you put in.
The key features of investing in funds
Diversification (spreading the risk)
Investing in funds usually means your money is spread across multiple assets, whereas investing in single companies or commodities means putting all your eggs in one basket. In a fund, you’re less likely to be seriously impacted by one falling share price.
In a fund, you’re effectively sharing the costs of investment with other people - which can help your money go further. If you were buying and selling shares yourself, for example, there might be significant additional charges to pay, but the fund’s dealings are all covered within the management charges.
Access to assets
Overseas shares aren’t too difficult to buy these days, but some asset types remain far easier to access through a fund than if you were trying to buy them directly. Funds therefore allow you to build a portfolio that might ordinarily be out of reach - like investing in multiple commercial properties.
With all the research and trading done for you by a Fund Manager, all you need to do is follow the progress of the fund – and decide when to sell (or buy more) units, taking financial advice and your financial goals into account.
What is a tracker fund?
There are many different funds you can invest in, but typically they are managed in one of two ways - actively or passively.
Actively managed funds see the Fund Manager aiming to try and outperform an index over the long term, for greater investment returns. At Wesleyan, we only offer actively managed funds, and we've won awards for that active approach. We were named Active Manager of the Year (2020) at The Asset Management Awards.
Passively managed fund portfolios are often referred to as tracker funds. They are created to align with a given market, with the simple aim of tracking it to match its returns.
Because they require less involvement from the Fund Manager, passive funds tend to have lower management charges, but remember that they don’t aim to perform better than their chosen index.
What is a unit trust?
Another distinction between types of investment fund is their structure. Unit trusts and Open-Ended Investment Companies (OEICs) are just two of the main fund types you’ll come across.
For the majority of investors, the difference isn’t all that important. Essentially though, in a unit trust, the fund is split into units and that’s what you’ll buy. In an OEIC, the fund is effectively run as a company, so you’re buying shares in that business.
From a practical perspective, the main difference is pricing. When you invest in a fund that’s run as a unit trust, you’ll often see two prices – an offer price and a bid price. The offer price is what you’ll pay per unit, and the bid price is what you’ll get to sell units back if you choose to cash in.
With an OEIC, there’s only one price, just like when you buy and sell shares directly.
You can invest in unit trusts through Wesleyan Unit Trust Managers' (WUTM) range of products, including the WUTM Unit Trust ISA. There are six funds you can invest in, each risk rated and fully managed on your behalf.
How to choose an investment fund
For many people, one of the advantages of investing in funds is that you don’t need to research and choose your own shares. But of course, you do need to decide which fund to invest in in the first place.
Here are some things you might want to think about when you’re weighing up where to put your money:
- The team behind the fund - The performance of an investment fund is largely down to the experience and skill of the Fund Manager and their team - so it’s important to invest in people you trust. We’re proud to say Wesleyan won Investment Team of the Year at the Insurance Asset Risk Awards 2020, and Active Manager of the Year at the Asset Management Awards 2020.
- The fund’s track record - You can find past performance charts and data for all our funds on our fund prices page. Remember, at Wesleyan we take a long-term investment approach, so you should only look to invest with us if you're able to commit for at least five years. Please note that past performance is not a reliable guide to future performance and the value of your investment can go down as well as up, so you could get back less than you invested.
- Your appetite for risk - All investment funds carry an element of risk. At Wesleyan, we classify investment risk and reward using a 1 to 5 scale, where 1 represents the lowest risk and 5 represents the highest. Often, this classification is based on how much of the portfolio is allocated to shares - with a higher proportion of shares (as opposed to other asset types) usually meaning a higher level of risk.
You can see these ratings on each fund factsheet, which you should always read before making any investment decisions.
If you’re unsure which level of risk is right for you, book an appointment with a Wesleyan Financial Services Consultant for professional financial advice.
Investing in funds with Wesleyan Group
Wesleyan provides a range of life insurance-based investment products, including the Capital Investment Bond and Flexible Savings Plan. Both offer a choice of 17 managed funds, including the flagship With Profits Fund – which can also be accessed via a With Profits ISA.
Unit trust products from Wesleyan Unit Trust Managers offer a further choice of 6 investment funds.
About the With Profits Fund
The Wesleyan With Profits Fund differs from most investment funds in two key ways.
Firstly, the value of the fund depends not just on returns from underlying investments, but also on Wesleyan’s profits and losses from across the business. As a mutual, we have no shareholders to pay - so we can share our financial success with you.
Secondly, while all investments are subject to the volatility of the stock market, the With Profits Fund seeks to reduce sharp rises and falls through a mechanism called smoothing.
This means holding back some returns when market performance is strong, to support returns when the market experiences losses. It helps to mitigate the effect of any short-term market fluctuations.
Bear in mind the value of investments and any income can go down as well as up. You may get back less than you invest.