Your buried treasure and the money men who look after the loot

INVESTMENT MANAGEMENT: with millions of people becoming shareholders

Investment management groups employ a wide range of strategies to decide where and how to invest your money, writes Ken Welsby.

Index tracking is increasingly popular. The objective is simply to match the performance of a particular stock market index.

Most traditional investment companies prefer active management techniques. Two of the most common are known as top-down and bottom-up.

Top-down investment works by examining and forecasting strategic factors such as economic and industrial trends - concluding, for example, that now is a good time to invest, or not, in specific industries.

Bottom-up pays much less attention to the "big picture" and enables fund managers to select individual company shares based on performance and prospects.

Which works best? Unhappily there is no simple answer - but investors should at least understand the basics before handing over their cash. Top-Down investment, which is used by some of the larger, more general investment funds, either does away with individual share selection or restricts the manager's choice.

This approach looks at a variety of official economic statistics to determine in which markets or sectors of a stock market to invest.

Once this overall investment strategy has been decided, there are wide variations in how it is put into practice. Some groups allow the managers to decide within a limited range which companies to invest in. Others, applying top down more strictly, allow no freedom of choice, investing only in those companies that are members of the relevant index in that particular market or sector.

One such fund is the Kleinwort Benson Global Equity Trust. Launched in February 1995, it provides an investment in the world's equity markets. To ensure that it can be used in a general personal equity plan (PEP), with all its tax advantages, over half the investments are in the European Union.

"The fund employs a passive investment strategy called total asset allocation" says Simon White, Director of Kleinwort Benson Investment Management. "This allows us to pick the most attractive markets on a worldwide basis."

A variety of economic criteria from every major country are looked at. Having decided on the relative attractiveness of the individual stock markets, investment funds are allocated.

Managers have no choice in deciding which particular shares to buy. Instead, funds are invested in the shares that make up the relevant index in each market.

"We invest in the FT-SE 350 Index stocks in the UK, Eurotrack 300 for Europe, Nikkei 225 stocks in Japan, S&P 500 in USA and FTA Pacific for Far East markets" adds Mr White. "In all, this gives us over 800 individual companies to invest in."

Kleinwort argues that this technique takes the pain out of stock selection, reducing the risks. The aim of the Kleinwort fund is to capture the benefits of steady growth over the long term, five or more years, from a global portfolio of shares. Because it invests in various index stocks, it is unlikely to provide outstanding short-term performance. But like the tortoise in the race with the hare, it aims to win over the long term - outperforming its competition.

FUND managers who take the bottom-up approach use in-depth research into individual companies before deciding whether to invest in their shares.

In some investment houses this bottom-up stock selection process takes place against a background of examining global trends and forecasting movements in the world economy - but in many cases these issues are virtually ignored.

Looking after pounds 330bn on behalf of more than 10 million investors worldwide, Fidelity Investments is probably the largest example of a group using a bottom-up investment strategy. "We do not employ economists," says John Ross, portfolio strategist of the group. "We do not even talk about macro-economic factors here."

Following this method of stock selection, Fidelity believes it finds out more about the potential future of any investments by doing its own research into companies.

"We nearly always talk to companies before we invest, going to visit them. We not only talk to the senior executives, we chat to line management and go on the shop floor" adds Mr Ross. "This applies just as much to blue chip FT-SE 100 companies as to the small and medium-sized ones."

Fidelity employs 47 analysts in London, making it one of the UK's largest investment/ research houses and its visits are not one-offs. It continually monitors existing and potential investments - even with highly regarded blue chip companies that are performing well. Since 1990, for example, it has made 171 visits to BP, which has proved to be one of many successful investments made by the group.

The group's fund managers are basically looking at predicting the long- term earning power of their investments. They are monitoring their estimates and assumptions and want to know if a company is improving its market share, cutting costs, has new products in the pipeline and all the other factors that lead to long-term growth.

In other words, Fidelity wants to know how good a company is at making money and, just as important, what the management is doing to improve its performance in the future.

If a company does not meet all its criteria, Fidelity will not invest. Nor will it blindly follow a good management team. Mr Ross is fond of quoting Warren Buffet, the investment guru, that "when good management meets a bad company, the bad company often wins". Only if everything looks positive, will this give Fidelity the confidence to buy shares to add to its portfolios.

Have you tried new the Independent Digital Edition apps?
Life and Style
techCould new invention save millions in healthcare bills?
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Finacial products from our partners
Property search

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests

India could be jewel in the crown for investors

With a new government and an ambitious prime minister, the country offers the prospect of strong returns. But there may be hiccups ahead, warns Simon Read

Child Maintenance Service to replace Child Support Agency - but is it better?

Reforms to the vexed question of child support payments by absent parents mean extra charges for both sides. Neasa Macerlean reports

Barclays's new life insurance heralds a revolution on the high street

The new product marks a shift towards 'clear, straightforward and standardised' banking products, says Simon Read

How to protect your assets if the stock markets begin to head south again

Are you worried about your portfolio? Nick Paler asks fund managers and investment insiders for advice
Fuel poverty campaigners united in criticising the delays in helping those in fuel poverty

Plans to tackle fuel poverty are slammed by campaigners

Charities and action groups believe that the Government's proposals are woefully inadequate
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Service Desk Analyst- Desktop Support, Helpdesk, ITIL

    £20000 - £27000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

    Service Desk Analyst - (Active Directory, Support, London)

    £25000 - £35000 per annum: Harrington Starr: Service Desk Analyst - (Active Di...

    Junior Quant Analyst - C++, Boost, Data Mining

    £30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

    Junior Quant Analyst (Machine Learning, SQL, VBA)

    £30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

    Day In a Page

    All this talk of an ‘apocalyptic’ threat is simply childish

    Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

    Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
    Mafia Dons: is the Camorra in control of the Granite City?

    Mafia Dons: is the Camorra in control of the Granite City?

    So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Emmys look set to overhaul the Oscars as Hollywood’s prize draw

    Once the poor relation, the awards show now has the top stars and boasts the best drama
    What happens to African migrants once they land in Italy during the summer?

    What happens to migrants once they land in Italy?

    Memphis Barker follows their trail through southern Europe
    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

    The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
    Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

    Frank Mugisha: 'Coming out was a gradual process '

    Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
    Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

    Radio 1’s new top ten

    The ‘vloggers’ signed up to find twentysomething audience
    David Abraham: Big ideas for the small screen

    David Abraham: Big ideas for the small screen

    A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
    Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

    Florence Knight's perfect picnic

    Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
    Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

    Horst P Horst comes to the V&A

    The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
    Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

    Mark Hix's summery soups

    Soup isn’t just about comforting broths and steaming hot bowls...
    Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

    Tim Sherwood column

    I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard: Young, gifted... not yet perfect

    Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
    Tim Howard: I’m an old dog. I don’t get too excited

    Tim Howard: I’m an old dog. I don’t get too excited

    The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
    Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

    Tom Peck on Match of the Day at 50

    The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition