Drawdown Fund Sectors

One of the most common ways to build a drawdown investment portfolio is to spread risk. A diversified portfolio is one which should be able to ride out weaknesses in certain sectors or geographical regions. The are thousands of funds available to invest in, each with their own specialism. Some target areas of the world or regions, others target sectors such as Technology.

Many drawdown providers offer a managed portfolio service where funds are pre-selected according to your investment risk attitude. If you feel confident in picking the funds yourself have a look at the different sectors below and the current top performing fund managers in that field.

FUNDS PRINCIPALLY TARGETING CAPITAL GROWTH

Japan – Funds which invest at least 80% of their assets in Japanese Equities. The Japanese market gives investors exposure to one of the biggest exporting counties in the likes of manufacturing. Japanese cars and electronics dominate the Western World. Deflation has weighed down on the region for years but with a government focused on achieving an inflation rate of 2%, a concerted effort is being implemented in bringing the economy back to a superpower. It has the worlds second largest stock market and has benefited recently from a strong corporate and banking sector.

UK All companies – UK All Companies – Funds which invest at least 80% of their assets in UK shares which have a primary objective of achieving capital growth. These funds offer exposure to the UK equities market with no preference on company size. They offer exposure to larger Blue Chip companies together with medium and smaller sized companies. Funds have the primary objective of achieving capital growth or total return. The sector contains around 275 funds and with no market capitalisation restrictions the diversification of these portfolios has no limits. Although a UK fund, many of the larger blue chip companies have global exposure.

UK Smaller Companies – Funds which invest at least 80% of their assets in UK stocks that make up the bottom 10% of the UK stock market. The sector carries more risk as funds generally invest in companies at an earlier stage of growth meaning their earnings can be a lot more erratic. A smaller company could double in size during a year offering opportunity for large gains, equally it could go out of business. The highs and lows are more volatile than funds purely investing in larger blue chip companies with more predicable profits. Fund managers in this sector show their talent if fund performs well, as its more about stock picking those hidden gems rather than building a portfolio of well establish blue chip utility companies for example.

Japanese Smaller Companies – Funds which invest at least 80% of their assets in Japanese stocks of companies which form the bottom 30% by market capitalisation.

Asia Pacific including Japan – Funds which invest at least 80% of their assets in Asia Pacific shares, including some Japanese. The Japanese element must make up less than 80%.

North America – Funds which invest at least 80% of their assets in North American shares. Being the world largest economy there has always been a spotlight on North American Funds. For this reason it’s difficult to find a clear advantage portfolio advantage on Wall Street. The stocks are analysed and reanalysed the world over making it difficult to find value above any other fund manager. Fund manager find it difficult to beat the main stock market the S&P due to this. The stock market is dominated by some of the world most well know companies, the likes of Apple, Google and Microsoft. Their every move is dissected in magazines and TV channels. It’s therefore easier to find hidden gems in less well known markets such as China. There is an argument therefore to shun active fund management over more cost effective investing such as tracker funds..

North American Smaller Companies – Funds which invest at least 80% of their assets in North American equities of companies which form the bottom 20% by market capitalisation. America is the land of opportunity and the birthplace of many successful entrepreneurs. Much the same as the UK, the opportunities available are endless and the chance of rapid growth for a smaller company is huge. The tech sector offers a real chance of finding hidden gems with Silicon Valley renowned the world over for making millionaire overnight. A fund manager targeting the right opportunities in this sector is worth the higher management charge. It’s higher risk though and should be approached with cautious for that reason.

Europe excluding UK – Funds which invest at least 80% of their assets in European shares and exclude the UK.

Europe including UK – Funds which invest at least 80% of their assets in European shares. They may include UK stocks, but these must not exceed 80% of the fund’s assets.

European Smaller Companies – Funds which invest at least 80% of their assets in European equities of companies which form the bottom 20% by market capitalisation in the European market. They may include UK stocks, but these must not exceed 80% or the fund’s assets. (‘Europe’ includes all countries in the MSCI/FTSE pan-European indices.)

Global Growth – Funds which invest at least 80% of their assets in equities (but not more than 80% in UK assets) and which have the prime objective of achieving growth of capital.

Global Emerging Markets – Funds which invest 80% or more of their assets directly or indirectly in emerging markets as defined by the World Bank, without geographical restriction. Indirect investment e.g. China shares listed in Hong Kong, should not exceed 50% of the portfolio.

SPECIALIST SECTORS

Specialist – Funds not categorised by the mainstream sectors, for example biotech portfolios. Performance ranking of funds within the sector as a whole is inappropriate, given the diverse nature of its constituents.

Absolute Return – Funds managed with the aim of delivering absolute (i.e. more than zero) returns in any market conditions.

Property – Funds which predominantly invest in property. This will be more commercial property than residential.

Technology & Telecommunications – Funds which invest at least 80% of their assets in technology and telecommunications shares as defined by major index providers.

PRINCIPALLY TARGETING IMMEDIATE INCOME

UK Gilts – Funds which invest at least 95% of their assets in sterling denominated (or hedged back to sterling) AAA rated UK Government backed securities with at least 80% invested in UK Government securities. (gilts).

UK Index-linked Gilts – Funds which invest at least 95% of their assets in Sterling denominated (or hedged back to Sterling) triple AAA rated government backed index linked securities, with at least 80% invested in UK Index Linked Gilts.

UK Corporate Bond – Funds which invest at least 80% of their assets in sterling-denominated (or hedged back to sterling) bonds, BBB-minus or above bonds as measured by either Standard & Poors or equivalent external rating agency). This excludes convertibles, preference shares and permanent interest bearing shares (PIBs).

Strategic Bond – Funds which invest at least 80% of their assets in Sterling denominated (or hedged back to Sterling) fixed interest securities. This includes convertibles, preference shares and permanent interest bearing shares (PIBs).

High Yield – Funds which invest at least 80% of their assets in Sterling denominated (or hedged back to Sterling) fixed interest securities and at least 50% of their assets in below BBB minus fixed interest securities (as measured by Standard and Poors or an equivalent external rating agency), including convertibles, preference shares and permanent interest bearing shares (PIBs).

Global Bonds – Funds which invest at least 80% of their assets in fixed interest stocks. All funds which contain more than 80% fixed interest investments are to be classified under this heading regardless of the fact that they may have more than 80% in a particular geographic sector, unless that geographic area is the UK, when the fund should be classified under the relevant UK (Sterling) heading.

UK Equity & Bond Income – Funds which invest at least 80% of their assets in the UK, between 20% and 80% in UK fixed interest securities and between 20% and 80% in UK equities. These funds aim to have a yield of 120% or over of the FTSE All-Share index.

UK