When savers want to invest their hard-earned bees and honey into stocks and bonds and so on but lack the time and/or know-how to do so themselves, they often turn to investment funds. Not only do funds allow you to outsource all the hard work to investment professionals, but they also let you diversify your dough across a variety of different assets – even if you’ve only got a modest sum to start with. ✨

An investment fund pools together cash from many such small investors and places it in the hands of a full-time money manager. They then invest that money according to predetermined criteria and objectives. Just about every fund invests in slightly different things and for slightly different purposes – but they’re typically classified according to their target asset class, region, investment strategy (e.g. growth or value), sector, and – for stock funds – company size.

Investment funds are usually structured in one of two ways. In an open-end fund – which includes most US “mutual funds”, European “SICAVs”, and British “unit trusts” – the manager issues as many shares as there is investor interest. When you buy into the fund, additional shares are created to fulfill that demand; if you sell those shares, they’re simply taken out of circulation. The value of an open-end fund therefore matches the value of its underlying investment holdings, also referred to as net asset value (NAV).

A closed-end fund, by contrast, has shares listed on an exchange, just like any other public company. The value of a closed-end fund is accordingly determined by demand for those shares – and it could trade above or below NAV. If you want to invest, you’ll have to find a seller; and when you want to extract your money, you’ll need to find a buyer for your shares. This normally shouldn’t be a problem, but in times of extreme market stress you could find there are no takers…

It’s also important to note that investment funds differ from exchange-traded funds (ETFs) in two main ways. First, investment funds are almost all actively managed: their managers pick specific investments that they think will combine to beat the market. ETFs, meanwhile, tend to be passively managed – they simply aim to replicate the performance of an underlying market index.

Second, ETFs and closed-end funds are listed on traditional stock exchanges, where shares can be bought and sold throughout the trading day. Shares of open-end funds, on the other hand, change hands just once per day – and are typically bought and sold via brokers or specialist “fund marketplaces.”

Finding fund data

Before we get into the details of investment fund analysis, it’s worth touching on how to find the relevant data in the first place. You can search for funds – and screen for them based on specific criteria – using free online tools such as Investing.com (a global database), Morningstar.com (US), Morningstar.co.uk (UK), Portfolio Visualizer (US), and Trustnet (European).

These sites allow you to both find investment funds and check out their details – and your first port of call should be the fund’s factsheet. The factsheet usually includes detailed performance data, information on the benchmark it’s aiming to beat, a breakdown of the fund’s holdings, and an overview of its investment team. Fund managers sometimes even include performance commentary in the factsheet, which can help put what you’re seeing into context. ✍️