A layman’s guide to advised investment strategies and fund types

There exists an alphabet soup of different advised investment strategies and fund types in the UK today. I am going to give you a brief summary of the main ones you will come across.

Discretionary Investment Management

Discretionary investment management is a form of investment management in which buy and sell decisions are made by a portfolio manager for the client's account. The term "discretionary" means that investment decisions are made based on the portfolio manager's judgment.

Discretionary fund management (DFM)

A Discretionary Fund Manager (DFM) uses their professional judgment to make investment decisions, buying and selling on your behalf. The service provided may be discretionary or non-discretionary.

A non-discretionary investment means that the stockbroker has to contact you and get your permission before making any trades in your account. In a discretionary account, the stockbroker is permitted to exercise their own discretion and make purchases or sales of securities without talking to you and getting your permission because this has already been pre-agreed.

Furthermore, the service may be bespoke or off the shelf which is known as a Managed Portfolio Service.

Managed Portfolio Service

A Managed Portfolio Service (MPS) is a centrally run investment strategy that is tailored to your attitude to investment risk. It adjusts automatically to ensure the investments as a whole do not become unbalanced and stay in line with your investment risk attitude.

Centralised Investment Proposition (CIP)

A centralised investment proposition is a standardised investment approach that allows independent financial advisers to offer a comprehensive, consistent, and value-adding investment solution to all of their investment clients.

What is the 60-40 rule of investment?

The 60/40 portfolio invests 60% in shares and 40% in bonds (government bonds and corporate bonds). This strategy offers investors the opportunity for stock market growth while benefiting from the added stability and income provided by bonds. This is a long-standing investment strategy which has worked well historically because investment returns have usually been good and less volatile than a 100% equities portfolio especially over periods of 10 years or more.

Active funds

An active fund manager's role is to select investments with the goal of outperforming the fund's designated benchmark or index.

Together with a team of analysts and researchers, the manager will 'actively' buy, hold and sell stocks to try to achieve this goal.

Passive funds (index tracker funds)

Passive investing involves placing money in funds that seek to replicate the returns of a particular market or index. They don't try to beat it. They simply mirror the performance of the market they are tracking.

Multi Asset Funds

As the name suggests, a multi-asset fund invests in a range of different asset classes. Unlike some funds that focus solely on shares or bonds, a multi-asset fund typically includes both, along with property, cash, and potentially alternative assets like gold.

Exchange traded funds (ETFs)

ETFs, or "exchange-traded funds," are exactly what the name suggests: funds that are traded on exchanges and typically follow a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours-potentially lowering your risk and exposure, while helping to diversify your portfolio.

Summary

So there you have it. An alphabet soup of jargon on various investment strategies and different fund types. It's not a comprehensive list. I've just summarised the main ones. If you need further advice then you should contact an Independent Financial Adviser who will explain your investment options to you. You know it makes sense.*

*RISK WARNING

The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts. This blog is based on my own observations and opinions.

Tony Byrne

Chartered and Certified Financial Planner

Managing Director of Wealth and Tax Management

If you are looking for expert guidance in Financial Planning contact Wealth and Tax Management on 01908 523740 or email [email protected]