Unit trusts and OEICs

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25. Selecting a fund: Past performance

The relevance of a fund's past performance to its future prospects is a thorny issue:

• In advertisements, unit trusts boast about their superior past performance, but always include the warning that it should not be taken as a guide to future performance (because they have to).
• The FSA announced in mid-2000 that it will not include past investment performance as a criterion for its forthcoming league tables on investment products on the grounds that it is no guide to future performance.

And yet . . . it is difficult to completely accept that view. If a fund has performed consistently well over many years, that must give some reassurance about its ability to deliver good results in the future.

Much is made in the press of 'star' fund managers, and the inference of these articles is often that if a Star leaves a fund, its performance will collapse. This is simplistic. It ignores the fact that Stars don't operate by themselves. They have assistants who do the research and help formulate decisions. Investment philosophies and techniques survive the departure of individuals.

If you want to find out about the past performance of funds, you can find in-depth data in:

• Money Management
• Bloomberg Money
• Money Observer
• What ISA

The internet is also a good source for fund information. There are a number of excellent specialist websites:-

• S&P Micropal (www.funds-sp.com) - one of the great primary sources of data on collective investments, from past performance to star ranking and information on all the fund management groups
• TrustNet (www.trustnet.com) - another first rate data source for open ended funds and closed ended funds (i.e. investment trusts)
• Interactive Investor (www.iii.co.uk) - perhaps the leading general personal finance website. The investment section is very strong
• Moneyextra (www.moneyextra.com) - another highly respected personal finance website with a good investment centre

1. What is a unit trust? 2. What is a unit? 3. The trust deed and scheme particulars 4. The people behind a unit trust 5. Charging structure of unit trusts 6. Pricing of units - FSA rules on maximum offer price 7. Pricing of units - FSA rules on minimum bid price 8. Pricing of units - in practice 9. Pricing of units - historic and forward pricing 10. OEICs - Open Ended Investment Companies 11. Shares in OEICs 12. OEICs - pricing 13. OEICs - charges 14. Taxation of unit trusts and OEICs - Introduction 15. Tax treatment of dividends from equity funds 16. Tax treatment of coupons from non-equity funds 17. Capital Gains Tax 18. Tax shelters 19. Investment powers of fund managers: 'eligible investments' 20. Diversification 21. Fund classification: risk gradings 22. Selecting a fund: Defining your objectives 23. Selecting a fund: Active vs passive 24. Selecting a fund: lump sum vs regular savings 25. Selecting a fund: Past performance 26. Where to buy unit trusts and OEICs 27. Buy with or without advice? 28. The mechanics of buying 29. The mechanics of selling 30. Share exchanges and fund switches 31. Investor protection 32. Conclusion

• Exchange-Traded Funds