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Top-down or bottom-up: How this fund manager technique can help you pick the best unit trust to invest in

by , 18 March 2014

When it comes to fund manager strategies, you'll often come across the terms top-down and bottom-up to describe how he picks his investments. But here's the thing most unit trust investors don't know: You can use the same technique to decide which is the best unit trust to invest in…

What does top-down, bottom-up actually mean?

As we explain here, ‘top down’ and ‘bottom up’ strategies describe how you go about selecting shares.
“You either start with a specific share, then look at the broader economy – a bottom up approach – or you start with the broader picture and work your way down to a specific share – a top down approach.”

So how does that help you as a unit trust investor?

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How this unit trust investing strategy can help you pick the right fund for you

As a unit trust investor, you can use a similar approach when it comes to picking good unit trusts to add to your portfolio.

If, says fundsupermart.com, you’re looking for a fund with a certain characteristic, say consistent dividend payouts, consider the bottom-up approach. Do this “by filtering for funds with a strong and consistent dividend payout history, or funds that invest according to a dividend strategy.” Then use your other sets of criteria to filter upwards until you’ve narrowed your list to the best unit trust to invest in for your need.
On the other hand, if you want to use the top-down approach, you’d first start with “the geographical region or sector with the most positive earnings growth outlook, most attractive valuation and therefore the highest upside potential.” Only once you find this, will you narrow your choices down to the best performing unit trust that invests in these areas.

So there you have it. ‘Top-down’ and ‘bottom-up’ investment strategies aren’t just for the professionals. You can use them to pick the best unit trust to invest in too.

Top-down or bottom-up: How this fund manager technique can help you pick the best unit trust to invest in
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