Investment companies: Where do I start?

Annabel Brodie-Smith, Communications Director, AIC

Investment companies, as many of you know, are a type of collective investment which allows you to spread your risk and access investment opportunities that wouldn’t be able ti invest in on your own. To find out more about investment companies see ‘A guide to getting started. Find out what makes an investment company tick.’ The AIC website is a comprehensive first port of call for information and data in investment companies. But what should you consider when looking to research an investment company? This article considers some of the main issues but for more information take a look at how to choose an investment company.

It’s useful to have a goal in mind before making an investment, as this will have bearing on how long you will be invested and the amount of investment risk you are prepared to take. Are you looking to save for a child or is the investment intended for your pension? Investment companies are listed on the stock market, and are primarily intended as long-term investments which can be higher risk. You should be prepared to hold them for at least five years and preferably ten or more.  You should not invest money that you cannot afford to lose. Do you want to invest a lump sum or are you going to invest regularly on a monthly basis?

AIC sectors

The investment company industry includes a variety of different types of investment company, and these are categorised by the AIC into different sectors based on criteria such as investment objective, geographical weighting or area of specialism. Our website allows you to filter by AIC sector, depending on your area of interest. The sector classification will assist you too in finding an investment company that is right for your objective. You should consider whether you want to invest in a specific sector.  Investment companies invest in a range of sectors from the UK and Global sectors to Emerging Markets and Japan.

Income, growth or both?

Is your priority to take an income from your investment in the form of a dividend, or to see high growth over the long term? Perhaps you’re looking for a combination of both. The investment company objective and sector will give you an idea of what its investment aim is. Comprehensive performance data on all AIC member companies is available in the individual company profile pages or as comparable figures in the find and compare investment companies section. We also publish data on dividend histories, and comparable dividend data.

Discounts, premiums and gearing

Investment companies have a number of differences to open-ended funds. As they trade on the stock market, each company will have both a NAV value (that of the underlying assets of the portfolio) and a share price value (what the company is worth on the stock market). If the share price value is higher than the NAV value, and people are paying more for the investment company than its underlying assets are worth, the company is said to be trading on a premium. If the share price value is lower, the company is trading on a discount. Investment companies also have the ability to gear, or borrow money to enhance their investments. The AIC publishes information on each company’s current level of gearing, its expected gearing range, and historic gearing levels. Discount, premium and gearing figures should all be considered, and data is available for all AIC members on the company profile pages, and comparably in the find and compare investment companies section.

Charges

Costs are an important consideration when investing.  The greater the costs, the harder your investments have to work to deliver you a return. There are a number of different types of costs you might incur depending on how you choose to buy investment companies. In the company profile pages we show the details of the management fee agreement and the ongoing charge which expresses as a percentage of NAV, the regular, recurring costs of running an investment company. If an investment company has paid a performance fee this will also be shown on the company profile pages.

Portfolio

The company profile pages give you more information on the portfolio of an investment company. It includes the geographic breakdown, the industry breakdown and the top holdings in the portfolio.

Management

Each investment company has an independent board of directors, whose job it is to oversee the management of the company and look after investors’ interests. The portfolio itself is looked after by a management group and manager. Each AIC company profile page gives details of both the board of directors, and the managers. It’s also possible to filter investment companies by management group name.

Ways to invest

How will you make your investment? You might choose to do so directly with the management group or instead through a stockbroker or online platform. You might also have the option of buying your investment company shares via a wrapper scheme, such as an ISA, Junior ISA, or SIPP, which will give you certain tax benefits. Information on the management group wrapper schemes for each company is available under the company profile pages.

The latest report and accounts and factsheet of an investment company are also available on the company profile page and these can give you a lot of information.  We also link to the latest company announcements from the profile pages so you can find out the latest news. It’s worth doing your research properly, when considering an investment company and we have a lot of information on the AIC site. If you are at all you are uncertain about whether, or which, investment companies might be suitable for you, you should take financial advice.