Amateur investors are behind a surge in new stock market accounts opened in lockdown.
Leading investment platforms are reporting a record rise in new Isa and pension accounts as DIY savers look to make their money go further.
The rise also comes after the stock market was plunged into chaos by the Covid-19 pandemic, with experts believing many investors hoped to get a bargain.
Leading investment platforms are reporting a record rise in new Isa and pension accounts as DIY savers look to make their money go further
AJ Bell reported a record 17,000 new account openings for its YouInvest platform in the first quarter of this year.
And Interactive Investor noted a 144 per cent increase in new Isa accounts and 136 per cent for self-invested personal pensions (Sipps) in April and May compared with 2019.
But what do you need to get started. Here we reveal the seven tools that DIY investors need to keep their Isa and pension investments on track.
1. Best-buy lists
One of the most influential guidance services from platforms is the ‘select lists’, offering a slimmed-down range of funds.
They usually feature 50 funds favoured for strong management, performance and low cost — a welcome aid, given there are more than 3,000 funds to choose from.
However, there is no guarantee they will perform better than funds which are not on the lists.
Investors who lost money in the doomed Woodford Equity Income fund will remember too well that it featured in popular platform Hargreaves Lansdown’s best-buy list until its suspension.
Justin Modray, of advice firm Candid Money, says: ‘If a fund is on most best-buy lists, it’s probably a reasonable choice.
‘However, no fund picker gets it right every time so do your own homework, too.’
The rise in amateur investors comes after the stock market was plunged into chaos by the Covid-19 pandemic, with experts believing many investors hoped to get a bargain
2. Value assessments
Ordinary investors can access a new-style report which names and shames funds failing investors.
The Financial Conduct Authority (FCA) ruled that asset management companies must review their entire range and come clean about funds which are not providing value for money.
Funds are assessed according to factors including costs, performance and comparable market rates. This requirement is designed to help investors make informed choices.
The so-called ‘value assessment reports’, new for 2020, have resulted in a better deal for investors. For example, Schroders announced plans to save investors about £8 million a year, including cuts to charges on 15 funds.
You’ll find reports on the individual websites of each company.
3. List of holdings
What a fund invests in is crucial information. The top ten holdings and percentage of the fund’s value held in each company — or bond — is widely available.
To find them, check the fund’s factsheet, a document provided by the investment company and refreshed monthly.
Or you can view them online directly from the fund management company or at Trustnet.com.
Typically a fund has from 50 to 100 holdings. Fund companies are required to publish a full list of holdings twice a year. Fidelity and JP Morgan Asset Management are among those that allow access all year round.
Investment trusts must disclose their top ten, plus any holding accounting for 5 per cent or more of the portfolio value as well as any unquoted investments.
Funds are assessed according to factors including costs, performance and comparable market rates
4. Fund objectives
Each fund has different objectives. A growth fund manager, for example, will typically choose to invest in companies they believe will be able to significantly grow their earnings over time.
Meanwhile, an income fund manager will back companies with strong balance sheets that pay dividends. Read the explanation of what the fund aims to do to see if it matches your objectives.
5. Manager commentary
To get an insight into the manager behind a fund, read their monthly and quarterly updates, which explain how they are investing your money.
In the current uncertainty, some managers are communicating more regularly. For example, Jim Leaviss, a bond fund manager at M&G, posts a bitesize daily podcast (Uncle Jim’s World of Bonds).
Updates, commentary and blog posts are on fund company websites, or you can phone to get information sent to you.
6. Fund ratings
Some funds are badged as best in class by independent ratings firms for superior performance in terms of stock-picking, consistency and risk control. AJ Bell, Interactive Investor, Fidelity and Halifax have search options for ratings provided by Morningstar.
It rates managers it believes can outperform in the future, and also judges on past performance.
Barclays Smart Investor uses another, called FE Crown Fund Ratings, to rate funds.
For those wanting to invest for good, EQi (previously Equiniti) displays ratings by independent research firm Square Mile, according to how funds take into account Environmental, Social and Governance (ESG) factors.
7. Past performance
Investors are warned at every juncture that returns from previous years should never be used as a guide to the future.
Yet it’s an important gauge of how a manager has fared. You can see figures going back five years alongside the average for similar funds on the fund factsheet or at Trustnet.com.
Consistent poor performance can be a warning sign.
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