Site hosted by Build your free website today!

3 things to look at when investing in unit trusts.


The first thing an investor must look out for are star ratings assessed by third-party investment consultants like Mercer or Standard and Poors. The star ratings are usually found on the top of the fund fact sheet. Outstanding funds are usually awarded four- or five-star ratings.

Mercer awards funds with a five-star rating if they have the best performance prospects against a suitable benchmark, on a risk-adjusted basis over a full business cycle.

On the other hand, Standard and Poors measures the volatility and consistency of a fund's performance relative to its sector over the past 36 months.


The second thing that an investor must take note of is the fund size. Fund size is important because a bigger fund means that it is relatively less costly to maintain due to economies of scale, and has a lower expense ratio. It also means that the chances of it closing, like in the case of AIG and Allianz, are lower. I recommend a fund size of $100 million and above as a suitable gauge.

The third thing that an investor must look at is a fund's performance relative to its benchmark. If the fund performs consistently above the benchmark and the greater the positive difference, it is healthy and the managers are indeed making the money work harder and adding value to investments.