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Follow these five tips to help you pick the best unit trust

by , 18 July 2014

Picking a unit trust is no easy task. There are hundreds of them out there.

When you buy into a unit trust, you want to find a fund that will perform even once you take fees and costs into account. This means yielding a return that outperforms the market. Otherwise your cash is better off in a tracker fund.

You need to find a unit trust with a good fund manager at the helm. So what should you look out for?

Read on to find out…

Tip #1: Look to smaller fund management companies

Yes there are large companies providing unit trusts for you to invest in. But sometimes smaller can be better. Performance of their funds is a priority.

Not only that, fund managers of smaller companies often have a bigger stake in the business. This makes them more determined to get the funds performing even better.

Tip #2: Try to find out if the fund manager has a stake in the fund

If you find this out, this can be telling, Phil Oakley in Money Week explains. Putting money into a fund where the fund manager also has an interest tells you he thinks the fund is a good investment.

Tip #3: Look for small funds rather than large funds

This tends to make them more dynamic. If they’re not investing vast quantities of money, these funds can invest in shares the larger funds simply can’t.

Bigger funds are harder to manage.

It can also be a good sign when a fund company limits the size of its funds.

Tip #4: Look for funds where the fund manager is there for the long haul

When a fund manager performs well, the risk increases that a rival company will poach him. To overcome this, look to a manager-owned fund company or a fund that has a team of managers.

Tip #5: Check how much cash the fund holds

Having a chunk in cash is a good thing. It means the fund manager can leap on opportunities as they arise.

When the market’s expensive a good fund manager will sell some investments and keep the cash until the market is showing better value.

So there you have it, five tips to help you pick the best unit trust.

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Follow these five tips to help you pick the best unit trust
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