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Guide to IC fund tips

How we source our fund tips and what the style, risk rating and timescales mean.
November 16, 2011

We're fund journalists, not analysts, and the initial source for many of our fund recommendations is a note from a stockbroker or independent financial adviser (IFA). We then add our own research and analysis. So this is our opinion, not that of the broker or IFA.

We don't limit our fund choices to open-ended funds such as unit trusts and Oeics (open-ended investment companies). We also include investment trusts and exchange-traded funds (ETFs), for example.

It's up to you to build portfolios, but we hope that our fund tips are useful as part of this process.

Here's what our tips mean:

Bull points: Reasons in favour of buying the fund.

Bear points: Reasons against buying the fund.

Tip style: Growth

If a fund tip is 'growth' it indicates that it is suitable for investors who want to grow their wealth. A growth fund tip is expected to produce growth above the market average for the foreseeable future. Typically, our growth fund tips are for investors who can tolerate carrying substantial loss-making positions and are investing over a time horizon of at least five to 10 years.

A growth fund will typically invest in the stock of companies that are growing rapidly and tend to reinvest all or most of their profits for research and development rather than pay dividends. However, growth can also be found in funds that invest in other assets (property and commodities) and use investment methods such as value and contrarian strategies.

So our growth fund tip style is a broad category identifying funds that are likely to generate capital gains rather than income. However, some of our growth fund tips will also be suitable for income investors - in which case, you might want to choose the income share class of the fund.

Tip style: Income

If a fund tip is 'income' it indicates that it is suitable for investors who want to generate income from their investments, on a monthly, quarterly, twice yearly or annual basis, as opposed to capital appreciation.

Income funds can hold a variety of assets, including government and corporate bonds, money market instruments and dividend-paying equities.

So our income fund tip style is a broad category identifying funds that are likely to provide an income from investments rather than capital appreciation. However, some of our income fund tips will also be suitable for growth investors. In this case, you might want to choose the accumulation share class of the fund, where the fund manager automatically reinvests any income.

Risk rating: High

The fund offers the potential to generate returns well in excess of the market average, though the chance of losses over the investment horizon is also high. Suitable for risk-seeking investors taking a long-term view.

Risk rating: Medium

The fund offers the potential to generate market-excess returns. Returns are unlikely to be as good as on a high-risk investment, though the chance of losses is less. Suitable for investors who want a balanced portfolio.

Risk rating: Low

The fund is unlikely to generate returns above the market average, though the risk of loss should be market average. Suitable for cautious investors who don’t like carrying losses.

Timescale: Funds have a different timescale to our share tips but the timescales are not definitive. In general 'short term' means we recommend holding the fund for one year or less (where we can spot a catalyst identified in the tip), 'medium term' means three to five years and 'long term' means anything over five to 10 years.