Advice matters
What’s the investment style of your fund manager?

How well do you know your fund manager? As part of your investment planning, you may have selected at least one fund manager – and potentially several – to manage your money and help you ensure that you hit your financial goals.

But fund managers do not all have the same approach, and understanding the benefits of the investment strategy being used to invest your money can be invaluable.

Here are some of the most common investment strategies and what they mean for investors.

Growth investing

Managers, or funds, that take a growth investment approach usually want to grow the amount of capital invested. They tend to value investments like equities in companies with big growth plans or small firms that may outperform the market over the long run.

Often, these growth companies don’t pay much in the way of dividends because they are reinvesting in themselves. But a growth strategy will be less concerned about that and more focused on the long-term outlook. There may be more volatility with a growth strategy because these investments can carry more risk. This could make  growth strategies a good fit for people who have a longer investment timeframe.

Value investing

Value investors are the bargain hunters of the investment world – this is a strategy favoured by investors like Warren Buffett. They look for investment assets that seem to be trading for less than their basic value, for example shares that the wider market has overlooked.

The goal with this strategy is to identify undervalued investments that are going to perform well over the long run, not just assets that are ‘selling cheap.’ Value investors may look at things like a price-to-earnings ratio to determine whether value is being underestimated. Investment managers might look for a ‘margin of safety’: the difference between the asset’s intrinsic value and the price it is changing hands for. Value stocks will usually pay dividends, which can serve as income or be reinvested.

Quality investing

Investment managers who have a quality investment strategy are looking for sound assets. They’ll usually have a set of criteria that they use to identify, for example, shares in companies that have a set array of characteristics.

When assessing companies, they’ll look at things like the credentials of the management team as well as the balance sheet and annual reports.  They will be less worried about seeking out a bargain as opposed to buying a very solid investment. The growth potential of a company will not appeal as much as the fact that a business has strong fundamentals that should set it up well for the future. Quality investments, too, will generally deliver a solid dividend stream.

Passive management

Passive investment strategies seek to replicate the returns of a benchmark index and do not worry about adding any “alpha” for their clients. The index used can vary a lot, but the manager will not seek to outperform. Instead, they will accept that markets tend to increase in value over time, and take investors with them.

A benefit of passive management is that it can be less resource-intensive, and fees are sometimes lower. Investors can select the right type of fund for their needs, whether that’s a growth focus or a need for income.

Buy-and-hold investing

This is another passive strategy, which gives investors a relatively stable portfolio over time. Fund managers using this method buy good assets and then hold them, not focusing on what the value of those investments does over the short term.

The benefits of this strategy are illustrated with a company like Apple – someone who had bought the company for US$18 a share in January 2008 and held on to it until January 2018 would have had a return of over 900%. For buy-and-hold investors, it’s usually time in the market rather than market timing that matters.

Want to talk?

If it’s time to refocus your investment strategy, or you just want to assess whether your portfolio is invested as it should be, get in touch.

Our SHARE investment advisers can help you look at the options available and determine how best to invest your money to suit your circumstances and goals.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.