Money: It's time to check your investments

How can you tell if your stocks are well managed?
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The Independent Culture
WITH THE world's stock markets looking worriedly at the economies of Russia and the Far East, now is the time to ensure that your investment managers are on the ball. Here are some questions you could ask them to find out.

What is your view of what is happening worldwide?

Many investment houses produce bulletins on their views of particular investment markets and of markets and economies worldwide. Be wary if your investment managers seem suicidal or gung-ho optimists. Most should also be emphasising the long term rather than over-concentrating on short term positions.

How do the markets affect my investments?

Provided you are investing for the long term, any short-lived fall in values should have little effect on your investments. You could switch out of stock market investments, but then how safe is the bank or building society which holds your cash and will you miss the boat by being too slow to get back into a fast-rising market?

If you own your own home, would you seriously considering selling just because you thought house prices might fall? Investment markets tend to go in cycles so, as long as the fundamentals are sound, what goes down is just as likely to bounce back up again.

What is your philosophy for the investment funds I am in? This will determine not just performance but also the actions that managers may take. In a discretionary fund, the managers may hold onto cash or switch out of equities if they fear big market falls. Tracker funds should remain fully invested, while some of the gargantuan managed and equity funds are simply too big to sell and move to cash without causing a fall in the market themselves.

Do my investments rely on borrowed money for investment performance?

Some investments use what is called "gearing", whereby the managers borrow money to reinvest in markets. As long as the underlying investments make more money than the cost of borrowing, you should see very good performance. If markets fall, however, any fall is magnified, and investments may have to be sold to pay the interest on the money borrowed. In falling markets such investments can be very volatile.

What is your investment track record?

You will not find a fund manager that does not claim good investment performance. What you want then is reliable evidence of investment performance - preferably from an independent source such as Planned Savings or Money Management - and over different periods of time. If your managers claim good performance over one oddly chosen time period, it may be because their performance over other periods is poor. Out-of-date figures may indicate that recent performance is poor.

Expect to see offer-to-bid performance - comparing the cost you could buy at in the beginning (the offer price) with the price you could sell at the end (the bid price). Offer-to-offer or bid-to-bid comparisons will not take into account the costs of buying and selling - usually 5 per cent or more.

How do my investments compare to similar funds elsewhere?

If you have a tracker fund which tracks or follows the stock market, compare its performance to other tracker funds, not a more specialist fund. If you invest in special situations, the Far East or gilts, compare to similar funds that also invest in those areas.

What are your charges?

Investment managers may charge an up-front charge (the bid/offer spread, usually 5 to 7 per cent), plus an annual management fee, plus their costs for buying and selling units.

What are the penalties if I switch or sell investments?

In falling markets, managers may be able to adjust their pricing basis to take account of the fact that more people are likely to be selling than buying.

If you have an insurance linked investment, usually called an investment, property or managed bond, the insurance company may impose a surrender charge on some policies.

Never sell or switch investments unless you are absolutely sure you know what you are doing and, better still, take independent professional advice first.

What is your sales and profitability track record?

Investment funds that have a net outflow (more sellers than buyers), are not currently being promoted or that are too small to manage economically may get little attention from their managers and performance could suffer as a result.

If the investment managers are losing money they could spend more time fending off their creditors than looking after your investments.

Have you recently lost any key personnel?

The loss of a top fund manager or two should not be a cause for concern but losing top fund managers over a period of time to various competitors could mean that the company has lost its way.

Andy Couchman is publishing editor of `HealthCare Insurance Report'