The Investor's Guide to Fund Hunter
The secret to happiness is to have low expectations, according to the research. It is therefore worth setting out what Fund Hunter is hoping to achieve and what the website is not for.
Fund Hunter seeks to identify the top 1% of long-term investment funds.
If there are 5,000 funds available for UK investors, the task is to identify the top 50. The idea is to sort the wheat from the chaff and deliver a more manageable investment universe.
Whether Fund Hunter does a good job cannot be guaranteed. Investment comes with no guarantees and some higher-risk funds will not work out well.
But Fund Hunter is unbiased and considers all fund types e.g. active and passive. The objective is to help readers make their own fund investing decisions.
Fund Hunter came into being 1) to make the case for investment funds and to 2) whittle down the investment universe to a manageable size.
The renowned investor, Charlie Munger, once stated that:
I read Barron’s for 50 years. In 50 years, I found one investment opportunity in Barron’s out of which I made about $80 million with almost no risk.
Munger is a voracious reader. Subscribing to Barron’s proved to be useful because one good idea can be worth its weight in gold.
Expecting that every fund covered by Fund Hunter will do well is unrealistic.
The aim is for Fund Hunter to help readers to identify at least one interesting investment fund every couple of years. The website also monitors funds to identify key changes when they occur.
Technology was generally a poor area to invest up until 2010 and has been an attractive sector since then. Active funds often perform well in their early years but as they increase in size this often becomes a headwind.
The only constant in the investment world is change.
Can Fund Hunter add value?
The famous stock market investor Peter Lynch once said: He who turns over the most rocks, wins the game. Fund Hunter aims to turn over lots of rocks. Most will have nothing underneath them but occasionally we will find something.
If Fund Hunter can offer one useful insight or help to identify one idea it should prove its worth. The key is to start with realistic expectations.
A 0.5% performance on a £200,000 portfolio provides a £500 benefit a year. A 1% performance improvement on a £500,000 portfolio would provide a £5,000 benefit every year.
This is how readers should think about the subscription cost. It is worth it if the benefit is greater than the cost and vice-versa.
If you don’t pay, you are the product being sold
This has become more pertinent in recent years. Independent research is only possible if the user pays. Everything else has a vested interest.
The media industry is in decline as readers and advertising have moved online. Much of the fund ‘analysis’ available online is marketing masquerading as journalism. More websites and publications are paid for by the fund management industry.
It is rare for people to bite the hand that feeds them.
The Fund Hunter model portfolio
The FH model portfolio is a learning tool. The aim is to find out what works when it comes to fund investing.
The aim is to show that it is possible to do well by investing in funds. There is a meaningful amount of negativity towards funds because some active funds have been poorly managed.
But we do not have to invest in active funds. Passive funds are the default option because they do not come with active manager risk.
The intention is not for people to copy the FH model portfolio. It is about the thought process and lessons learned along the way.
Who is the website for?
Fund Hunter is designed for people who are able to make their own investment decisions. It may also be useful as a means of learning about investing.
The website cannot and doesn’t seek to give advice. Readers need to consider what is appropriate for their own circumstances and experience. This includes whether DIY investing is appropriate.
Fund Hunter’s view is that funds are the appropriate vehicle for 99% of us. Only 1% have the time and inclination to invest directly in equities but most of the commentary is on stock investing.
Investing is said to be simple, but not easy. This is because it requires us to stay on top of our emotions. This is hard to do during events like the pandemic-related sell-off in March/April 2020.
If you choose to be a do-it-yourself (DIY) investor, the buck stops with you.
Your support is appreciated
Fund Hunter is in part a commercial endeavour and in part a social enterprise. Part of the aim of the website is to help people invest.
By supporting Fund Hunter, you are helping to support independent fund research. This can be invaluable to new investors who are best advised to start with funds.
Too many only consider bank accounts due to the fear of the unknown and the fear of loss. Supporting Fund Hunter may help to boost financial literacy and encourage more people to invest.
There has been an explosion of DIY investors in the UK with some estimates putting the figure at 3 million. But the bulk of funds are not worth the candle. Fund Hunter’s aim is to identify the good ones.
Other considerations include things like 1) how to build a fund portfolio 2) monitoring funds and 3) active versus passive funds. Investing is an ongoing process.
This article was inspired by the Owner’s Manuals for Fundsmith Equity Fund and the Smithson Investment Trust. Both are well written and explain what the funds hope to achieve.
Fundsmith is one of the only fund managers that produces Owner’s Manuals. They are useful in understanding what the goal of the funds is.
1) One way to view Fund Hunter
One way to view Fund Hunter is as an investing travel companion or sidekick. While sidekicks have their own ideas, we should form our own views and do what is best for ourselves.
The lesson from the Woodford saga is that we need to do our own research. The alternative is to invest in a global tracker fund, which has relatively low downside risk over the long term.
2) I’ve got your number
An additional aim of the model portfolio is to promote accountability and transparency. The investing world is full of self-styled gurus who are often selling highly-priced courses.
There is also misleading advertising from the likes of Spread betting companies. Around 80% of spread betting customers lose money. Something they are forced to report in the small print.
Many self-styled gurus do not report performance numbers and instead pick an estimated annualized return of 100% or 200%. These kinds of returns would make them billionaires in no time.
The FH Model Portfolio shows fund investing, warts and all.
3) Studying investors and funds
This website should be useful to a broader audience than DIY fund investors.
One motivation for it is to better understand how the world's leading investors invest. There is nothing like learning from the best by looking at their factsheets and portfolios.
An additional motivation was to consider the stock ideas of the best investors. If we are going to invest in stocks directly, there is perhaps no better source of ideas.
Even if we do not invest in funds directly ourselves it is useful to have an understanding of the area. It helps in holding a financial advisor to account.
Finally, students may be keen to understand investing to better advance future careers. Some of us may also find investing just inherently interesting to read about.
For some, investing is an endlessly fascinating topic. The numbers are always dancing, the challenge is to predict where they will go over the long term.