Fund Best Buy Lists such as the Wealth 50 or Select 50 are offered to investors by Online Fund Supermarkets, aiming to help make it easier to choose between the thousands of funds on offer.
With analysis conducted on the funds incorporated in these Best Buy Lists, the narrowing down of choice into the tens rather than thousands and the potential for enhanced discounts (such as a lower Annual Management Charge) – it is hardly surprising that they are vastly popular.
Before compiling such lists, an Online Fund Supermarkets will use quantitative and qualitative techniques. They will review the historical performance of Funds across sectors and look to form a basis for comparison. Besides the numerical analysis, the Fund Supermarket is also likely to use qualitative techniques.
Meeting with the Fund Manager themselves, gaining more insight into their investment process and ensuring their approach aligns to the risk profile of the fund are common techniques used.
What then results is a selection from the Fund Supermarket in terms of the final list of selected funds to give greater promotion to. This allows you to filter between 50 funds (rather than 000’s) and focus on funds in certain sectors such as Equity Income, Corporate Bonds, Absolute Returns and choose between a handful of funds .
So what’s the controversy about? Treat them like ‘fund tips’ – do your own homework
Many Best Buy Lists have been hit by controversy in recent times. Questions have been raised as to how robust the selection process is, if there incentives offered and accepted for fund managers themselves to get onto the list and so on.
However, the one thing that investors may forget is that this is DIY Investing. Ultimately it is your choice what you invest in. If someone offers you a share tip, then it is not necessarily a good one. Similarly if a Fund Supermarket gives a tip on a fund that it expects to perform well – it may not turn out to be a good one.
The golden rule is to invest in what you are comfortable in. Lessen your risk by conducting your own due diligence. Best Buy Lists can help you get to the right choice – but it’s foolish to invest in anything without doing your own homework.
Some of the additional checks you can do are to compare the fund’s performance yourself to others in the sector, reading the fund fact sheet, understanding the risk profile as highlighted in the KIID and ultimately making sure it aligns to your investment goals.