Updated: Jan 17
Investing in funds allows the investor to gain exposure to asset classes that they couldn’t invest in on their own. A single investor might not be able to buy gilts, property or private equity, however, investing in a fund provides access to these asset classes and hence increases the diversification in a portfolio. This would decrease the volatility of a portfolio and has the potential to provide better investment returns.
Additionally, the objective that we hold for our clients is to provide the maximum amount of return for each unit of risk a client is willing to take. Investing in funds provides a potentially lower level of investment risk compared to direct shares due to specialist fund managers being able to apply their expertise to provide a good level of mean-variance optimised performance.
Furthermore, not investing in a fund would mean that an investor would have to analyse individual stocks for selection and constantly evaluate their performance against the market. This can be extremely difficult and its performance can vary massively. Therefore, at Reeves, we include many funds in our portfolios from different sectors and regions to further diversify the holdings in our portfolios.
Finally, fund managers can benefit from economies of scale as they are purchasing many units at a time, lowering their per-unit cost of investments. This can ultimately save the investor the fees they would incur if they were to purchase the same investments privately.
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Please note: Investments can go down as well as up and you may not get back the original capital invested. This newsletter is for information only and should not be seen as advice or a recommendation to take action.