There are 11 investment asset classes widely used and classified in four main groups, Equities, Bonds, Property and Cash and from investor experience in recent years, lessons can be learned by not ‘putting all your eggs in one basket’.

In the early 1990’s, technology companies were ‘the rage’ and more recently property investment. Both sectors shared the same experience in the investment cycle of rapid growth and decline and depending on what stage of the cycle the investor entered and exited, there were various outcomes ranging from high gains to extreme losses.

Based on this, it is fair to say that no single investment class has dominated the investment market and the preferred approach now is to adopt a more diversified approach.

Principle First’s investment approach is to apply various criteria filters to the initial investment fund selection, which reduces the original amount of around 3000 funds available to below 50 based on measures such as past performance, volatility, industry ratings, and the amount of time the fund manager has managed the investment fund. This research is carried out on a regular basis.

When it comes to giving advice and appropriate investment selection, we will firstly assess the attitude to investment risk a client has. We do this through using a ‘Risk Profiler’ which factors in existing investment experience, the range of investments a client already has, their expectation of growth and timeframe of investment, and more importantly their ‘risk appetite and capacity for loss’.

Understanding an investor’s attitude to risk will allow an appropriate Principle First Model Portfolio to be recommended.

We have model investment portfolios ranging from Lowest Risk to Highest Risk. The most suitable for the the investor is based on the investor profile generated and this can be reviewed and rebalanced at an annual review meeting or more frequently if required. Within each portfolio the options to use various tax wrappers are available such as ISAs, Bonds, Pensions and Investment funds.

To discuss your investments further or to have your investments analysed to see if they suit your investor profile, call us today on 0800 678 5929 or get investment advice.

Interest in ethical funds has surged during 2010, and promises to grow strongly over the coming few years, according to new data from the Investment Management Association (IMA).

Ethical funds investments accounted for £74 million in the third quarter (July to September) of 2010, up 25% over the same quarter in 2009, and compared to £64 million on average in recent quarters.

Interest in ethical investing is no longer limited only to those who wish to invest with conscience in the world’s most ethical industries and companies, according to the Investment Management Association. Many investors are building an ethical investment portfolio based purely on the track record of ethical funds, and good returns on investment. There is a huge unmet demand for advice and information on investing in an ethical fund, they said.

Commenting on the IMA statistics, Penny Shepherd MBE, UKSIF chief executive, which organised National Ethical Investment Week (7-13 Nov), said: “While these new statistics are very positive, research for National Ethical Investment  Week shows there is still huge unmet demand for modern green and ethical investment options. Although only 8% of savers and investors currently hold green and ethical investments, a further 37% say they will consider doing so in the future.

“Our research shows that we are entering a decade of financial responsibility, as more people consider how they can make money and make a difference in the world. Attitudes are changing from ‘greed is good’ to green is good.”

There are currently some 100 ethical funds available in the UK market, from a wide range of ethical investment companies.

A new report has found serious flaws in the ethical investment criteria being applied by certain ethical funds in the UK.

The new report* analysed UK-based investments classified in the “ethical and global ethical” funds sector and discovered that 72% of these funds (or 34 out of a total of 42) had some investments in the oil and gas industry at the time of the analysis, which was carried out in September 2010. The report is sure to challenge the trust of UK funds investors in ethical investments, at a time when there is already  much controversy over the validity of the ethical criteria of funds companies when classifying their funds.

The report emphasises again the need to take investment advice from an independent investments adviser, when considering ethical and other funds choices as part of your investment planning.

Most ethical fund providers claim to apply a process known as ‘negative screening’ when assessing companies and stocks for inclusion in their ethical fund. Negative screening means avoiding companies involved in a range of industries and activities commonly regarded as unethical, including oil and gas, military and defence, tobacco, animal testing, the pollutant industries, nuclear power, exploitation of workers, and collaboration with unjust political regimes.

Many ethical funds also apply a process of positive screening, identifying and focusing their investments on companies which promote positive environmental impact, renewable energies, clean technologies, fair trade, clean water production and supply, and responsible employment practices. However, the structure for regulation of ethical funds is still not at a mature stage, despite the fact that the ethical funds sector in the UK, which was founded in 1974, is already approaching its 40th year.

For those interested in funds investments, a worthwhile first step is to make an investment enquiry to a qualified independent adviser, who may also be able to recommend tailored investment portfolios as well as individual funds.

*A Guide to Climate Change and Ethical Investing 2010 by the ethical investment specialist Holden & Partners.

Credit Suisse has just launched a new series of investment funds including a FTSE 100 tracker fund, which holds all or most of the top 100 shares in the London stock market, but charges just 0.33% per year.

Tracker funds are generally a more economical type of  funds investment. They buy shares in various sectors and industries, in proportion to the current structure of the index, so that their performance follows the index very closely. On the other hand, while tracker funds do keep step with the index, they cannot achieve a higher return by outperforming it.

Unlike actively managed funds, tracker funds do not incur large dealing charges by buying and selling assets often, in an attempt to cash in on short growth surges in the market. Managing tracker funds is, therefore, a relatively cost-effective process, making them the least expensive means of investment in funds. Some trackers, such as this one from Credit Suisse, invest to fully reflect the proportions of the index, others pick one stock from each industrial sector in the index – a process known as ‘sampling’.

Actively managed investment funds, on the other hand, attempt to outperform their index by buying and selling stocks more dynamically and regularly. This gives them the opportunity to cash in on short-term growth in the performance of individual stocks. However, the much higher transaction costs involved mean that actively managed investment funds charge premium rates, when compared to index tracker funds.

At Principle First, we offer various options for investing in funds, including our tailored range of funds investment portfolios, which give ready-made options for investment in funds to suit each client’s risk profile.

Investment funds offer a golden opportunity to expose your money to the attractive growth rates that can be accessed in stocks and shares. Investment funds pool together the cash from many investors, and a professional fund manager then invests the cash in a range of stocks, shares, and other asset classes, thus cutting the cost of funds investment for each individual, while at the same time spreading investment risk over many companies and investment types.

Historically speaking, funds investments almost always outperform cash and bank account savings in the longer term. Investing in funds is, therefore, a great way to beat the bank! These days, investing in funds can be done through a stocks and shares Individual Savings Account (ISA), so that you gain a tax advantage on your returns as well.

When looking at funds investment, the first step is to be clear in your mind how much risk you want to take. Are you looking for solid funds with low risk and moderate growth, perhaps focussed on large UK and US companies, or are you a more agressive investor, prepared to take a higher risk for the prospect of a higher return, perhaps by investing in the more exotic ‘emerging markets’ of the Far East and China?

The best way of doing this is to talk to one of our expert funds advisers.  With just a few simple questions, we can establish where you come on the sliding scale from the very defensive to the very aggressive investor. Alternatively, you can check this yourself online, by answering the same questions using our simple Risk Profiler tool within the Principle First Investment Planner.

Investment funds – which fund should I choose?

There are various strategies for investment in funds. The first choice is whether to choose active or passive investment funds.

Passive investment funds are set up to follow or ‘track’ the index of their respective stock market. Tracker funds invest in various sectors and industries in proportion to the current structure of the index, so that their performance follows the performance of the index very closely. Tracker funds do not, therefore, incur large dealing charges by taking short-term positions (i.e. buying and selling assets often in an attempt to cash in on short surges in the performance of individual stocks).

Tracker funds tend to keep their investments steady in the longer term, prompting the motto for managers of passive investment funds: ‘Whatever you do, do nothing!’

Managing index tracker funds is, therefore, a relatively economical process, making them the least expensive way of accessing investment funds. Some trackers invest to fully reflect the proportions of the index, others pick one stock from each industrial sector represented in an index – a process known as ‘sampling’.

The limitation of tracker funds, of course, is that your funds investments reflect the index, but cannot outperform it for a higher return.

Active investment funds – aiming high

Actively managed investment funds aim to outperform their index with a much more dynamic investment strategy. The fund managers of actively managed funds investments buy and sell stocks regularly in the hope of benefiting from short-term growth in the performance of individual stocks.

This requires extensive research by a team of analysts, as well as much higher transaction costs, and actively managed investment funds charge premium rates, but offer the prospect of outperforming the index (and the index tracker funds described above). 

Generally speaking, around one-third of actively managed investment funds succeed in outperforming their index, in any given year.

Principle First Investment Funds Portfolios – taking the heat out of choosing funds

At Principle First we have a range of funds portfolios tailored to all risk profiles. These are groups of funds chosen by our in-house funds experts. They are re-evaluated on an ongoing basis to ensure they are the best performers in their sector, and that their risk level remains in line with the portfolio where we have placed them.

Find out more about investing in funds – make an investment enquiry or ring 0800 678 5929 now

Investors in ethical funds have been happy to open their morning newspaper over the past 4 months. What is the reason?

Because most ethical investments seek to avoid the oil and gas business, and have been untouched by the great black slick of misfortune that has befallen BP, since the Deepwater Horizon rig exploded on to the front pages on 20th April.

The oil slick ran to 1,000 barrels a day by 26th April and had reached 5,000 barrels a day 3 days later, reaching the Louisiana shoreline with a spill surface of 4,000 square miles, on 30th April.

The Deepwater Horizon slick was finally capped after 38m gallons had spilled into the Gulf of Mexico, dwarfing the 11m-gallon slick from the Exxon Valdez in Alaska’s Prince William Sound in 1989.

A better advertisement for ethical investment was scarcely imaginable.

Any investment funds with exposure to BP were hit hard, as the company’s share price sank to the bottom of the Gulf of Mexico. Pensions experts calculated, in fact, that a UK pensioner with a potential annual pension income of £15,000 would have seen £400 of that wiped out by the slump in BP’s share price, which tumbled from around £6.50 in April to almost £3 in July, wiping £50bn off the value of the company.

Ethical Funds Investments became possible in 1971 with the launch of the PAX fund in the US, which avoided any companies benefiting directly or indirectly from the Vietnam War.

With their ethical policy, many ethical funds investments were bypassed by the banking crisis of the last five years, due to their low exposure to financial companies, while other ethical funds investments were sheltered from BP and have also been enriched by the recent news that renewable energies – one of the focal points for ethical funds – delivered over 10% of all energy in the EU for the first time.

Ethical investments target only stocks and companies which meet various criteria relating to ethical behaviour. Some ethical funds have an ethical policy based on negative screening, defining the activities, products and companies they exclude. These might include animal testing, deforestation, meat, nuclear power, pollution, tobacco, military and weapons, genetic engineering, exploitation of workers, and oppressive regimes.

Other ethical investments use positive screening, to invest in biodiversity, sustainable forestry, environmental products, green transport, charity work, renewable energies, and water management.

Many funds are available through third-party distributors known as ‘platforms’, who attract new investment for the funds by distributing them, via IFAs, in return for a fee. Press reports have suggested that some platforms are providing additional ‘shelf space’ to certain fund managers, by featuring them on preferred lists, or providing them with higher visibility online.

The standard fee for such services is 0.25% but some platforms are allegedly receiving additional payments from funds managers that can take these payments to 0.4%.

The reports have emphasised that only financial planning advice from an independent source can properly measure funds performance and fees, and provide customers with a genuinely balanced view of a funds or investment product.

The need for good, objective funds analysis has never been greater. The number of underperforming investment funds (so-called ‘dog funds’) has risen rapidly due to the recent stockmarket slump and in March 2010 there were 90 such funds on the UK market, up from 77 in October 2009. Some of these funds were among the largest in the UK, by assets under management.

It is therefore essential to seek independent financial advice from a company with a fund analysis capability, which provides advice based on first-hand analysis of a fund’s investment weightings and an objective view of the quality of management of the fund.

Principle First offers a portfolio analysis service for those with existing funds investments, as well as analysis-driven independent financial advice on funds and the Principle First range of funds portfolios to suit all risk profiles.

You can obtain independent financial advice on funds and investments by making an investment enquiry online or by ringing freephone 0800 678 5929 now

The Government Global Pension Fund, which is the state pension investment fund of Norway, had made news at the beginning of the year, when it pulled out of investments in certain companies due to their connections to the tobacco industry.

The criticism, by leading Oxford ethical fund researchers, described the exclusive ethical investment strategy of the Norwegian investment fund as ‘self-defeating’.

Speaking for the managers of the ethical fund, special adviser Trude Myklebust said the investment fund will continue to refine its approach to ethical investments, moving from evaluating companies on a simple ‘do no harm’ basis to demanding a more proactively ethical stance.

The investment fund has, however, declined to exclude Israeli companies from its portfolio, following the recent attacks on ships carrying aid to Gaza, according to the Norwegian Finance Ministry.

Ethical Funds Investments

Ethical funds investments are a relatively new area of the funds industry, but offer investors a great opportunity to combine their ‘green’ investment philosophy with ethical investments that represent a real vote for more responsible environmental practices.

Interest in ethical investment is growing extremely rapidly in the UK. The ethical investment fund watchdog EIRiS reveals there is currently £7bn invested in ethical funds in Britain, compared to £1.5bn ten years ago.

Seventy per cent of people in Great Britain strive towards ideals that are green and ethical, and 49% of people with savings and investments would like to make a difference with their money, according to EIRIS.

Principle First offers  a range of ethical funds investments, including an ethical investment in cleantech, alternative energies and wind power through the IMPAX Environmental Leaders Fund, or the ‘greenest’ ethical fund of all, a direct ethical investment in the forestry sector through the Quadris Environmental Fund.

Are you interested in ethical investments or in learning more about our ethical portfolios? Make an investment fund enquiry now or ring 0800 678 5929

When helping you to plan funds or other investments, a good financial adviser will first go through the process of identifying your investment risk profile.

This will define the maximum risk level you would like to see reflected in the investments you will make.

This can be done in a face to face conversation, but also online using the Principle First Investment Risk Profiler Tool here on our website. By answering a short sequence of simple questions on your attitude to risk, the investment risk profiler will quickly inform you of your risk level, which in turn will enable your adviser to recommend investments in one of a range of funds, investment products, or in one of our ready-made Principle First Investment Portfolios.

The Investment Risk Profiler tool classifies investors in one of six risk profile categories.

Investors with a ’very defensive’ to ‘defensive’ risk profile feel comfortable with  only a very low level of risk in their investments. They want their money placed where it is safe and secure. They may be most comfortable with the traditional bank deposit account, cash Individual Savings Accounts (ISAs), or guaranteed investments that assure you there is zero risk to your capital, and that you will be repaid at least the sum invested.

Investors with a ‘cautious’ risk profile are not quite as averse to risk as the defensive investor, but would certainly not feel comfortable with investments that are subject to large fluctuations in the shorter term.

The investor with a ‘balanced’ risk profile may be prepared to accept a mix of low-risk and medium-risk investments. If you have a balanced risk profile you may opt for a stocks and shares investment through a stocks and shares ISA, to target a relatively good return in the longer term. The investor with a balanced risk profile is likely to agree, in consultation with his financial adviser, to accept that the value of his investments may fall as well as rise.

Investors with a risk profile ‘aggressive’ to ‘very aggressive’ view a higher risk level as a positive element in their strategy to achieve a potentially higher return. These are investors who will not be nervous to see fluctuations of 25% or more in their investments in any given year, and in fact may view a drop in stock values as an opportunity rather than a threat – an opportunity, that is, to snap up additional investments at a bargain price.

Are you curious to know your risk profile? Test your attitude to risk right now with our Investment Risk Profiler Tool, or call us to discuss further on freephone 0800 678 5929

The new report* reveals that while the number of seriously underperforming funds has risen from 77 to 90 over the last six months, the amount of money invested in these s0-called ‘dog’ funds is now £14.25bn, almost double what it was in January 2009. This is because adverse conditions in the markets in recent years have caused some of the country’s largest funds to slide into the ‘dog’ category.

“The last three years cover a period in which markets have fallen sharply and then recovered strongly. Funds which have managed to perform poorly in both conditions need to be inspected closely,” said Bestinvest.

In order for a fund to qualify for the ‘dog’ category in the Bestinvest report, it must be a UK-registered unit trust or open-ended investment company (OEIC) investing mainly in equities. The fund is then compared to the relevant benchmark or index, which for most is the FTSE All Share Index.

Then the fund must have underperformed the selected benchmark in each of the last 3 years, and have underperformed its benchmark by 10% cumulatively over three years as well.

The report serves as a reminder that any shares investment or stocks investment needs to be monitored on an ongoing basis, as a fund performing above its benchmark this year may not maintain its performance in the future.

One way to ensure that a shares investment is still performing well is by taking financial planning advice, preferably from an independent financial planner.

Principle First Financial Advisers offers a free funds portfolio analysis within its investments advice service, which will analyse a client’s existing shares investment portfolio, identify any underperforming funds, and recommend changes that should be made. Clients interested in setting up funds investments, Principle First offers a range of investment portfolios.

*Bestinvest’s quarterly ‘Spot the Dog’ guide to UK funds, Spring 2010

Would you like to discuss funds investments, or check  how your funds are performing? Contact us by making an online investment enquiry or ring freephone 0800 678 5929 now