Please remember that the value of an investment and the income from it can go down as well as up and you may get back less than you invested.
We don't provide advice so if you are in any doubt about making your own investment decisions we recommend you seek advice from a suitably qualified financial adviser.
A fund is a pool of investments which you can use to access a much wider range of stocks and shares than you could obtain as an individual. The money invested is spread between different sectors reducing the risks involved in stock market investment.
In a managed fund a professional, experienced Fund Manager will monitor investments with the objective of ensuring that the fund achieves its expected regular income or investment growth.
Exchange Traded Funds (ETFs) are bought and sold on the stock exchange like shares and are designed to track the performance of a particular sector, index, currency or commodity.
Funds represent medium to long-term investments. While of lower risk than investing in equities, you may lose some (or all) of your initial investment.
You can buy and sell funds online for a flat rate of £12.50 per trade. Or if you prefer, you could set up an online regular investment to purchase a fund for £2 commission per stock.
Before purchasing a fund you must review its Key Investor Information Document (KIID). As this document is only available online, you cannot buy funds using our telephone dealing service. You can still sell your existing funds over the phone and you’ll pay a flat rate of £25 dealing commission per trade.
Please note: You can’t trade funds within the Halifax ShareBuilder.
There are four main types of managed funds which you can invest in:
A cautious managed fund actively minimises risk by operating a mixture of fixed income investments and equities. Usually invested in large companies, these funds can also be invested in smaller companies with growth potential.
Balanced managed funds provide income, modest capital appreciation and risk management. They spread the risk by investing in a range of assets, giving both growth and income, while managing any negative stock market changes.
The fund manager of an actively managed fund will buy and sell holdings in order to maximise gains and minimise losses. Managers of these funds have the flexibility to react quickly to changing market conditions.
The fund manager of a passively managed fund follows predetermined guidelines (such as tracking an index) in order to meet the fund's objective.
An Exchange Traded Fund (ETF) consists of a range of open-ended investments, listed on a stock exchange and traded and settled like shares. Basically a passive investment, they are designed to replicate the performance of an index, market sector, currency or commodity.
ETFs, either ‘Physically Backed’ or ‘Synthetic’, are usually low cost investments which will track the performance of an index or commodity.
A Physically Backed ETF will try to buy and hold the underlying asset(s) of the index or commodity it is tracking. The ETF will buy all of the underlying constituents of the index (full replication) or buy only a representative sample of the index (optimised approach). Optimisation will be chosen when the index is broader or less liquid.
A Synthetic ETF is constructed using financial derivative instruments and not backed by physical assets.
ETFs therefore differ from other commercial financial instruments, such as equities or bonds, and all potential investors need to consider these differences before buying. They are summarised below.
Synthetic ETFs achieve their returns by entering into derivative transactions, such as swap agreements or futures contracts with counterparties rather than by buying the relevant assets themselves. We strongly recommend that investors read the relevant ETF prospectus to see whether the fund is backed by physical assets or is otherwise underwritten by financial derivatives. For funds backed with financial derivatives, investors should also ensure they understand the collateral arrangements in place to cover any potential default.
If an ETF provider chooses to generate additional returns by taking part in a stock lending programme, this can constitute a further risk, even with physically backed ETFs. Again investors should understand the collateral arrangements provided to cover any potential default.
A tracking error occurs when there is a difference between the performance of the ETF and that of the index or commodity it is designed to track.
There are a number of reasons why this could occur, including transaction and management costs.
Annual charges made by the ETF provider for managing the fund may cause it to underperform against its benchmark. Both physical and synthetic ETFs will also incur extra transaction charges such as re-balancing costs on a physical ETF or rollover fees on a futures contract. Both these factors could affect the performance of the ETF compared to the asset it is tracking.
An ETF can be priced in a currency different from that in which the assets are priced; for example, an ETF priced in sterling could be invested in and tracking the Dow Jones Industrial Average. In such a situation investors will face currency risk.
Leveraged ETFs are complex instruments. They use futures or derivatives to achieve returns which exaggerate the movement of the underlying asset, e.g. rising (or falling) by 2% for every 1% rise (or fall) in the underlying asset.
Short funds use similar strategies but return a mirror opposite performance. For example, for every 1% fall in an asset, a leveraged short fund would deliver a 2% increase.
Losses can occur much more quickly with both types of funds than with more traditional investments but any losses would be limited to the amount invested.
Most ETFs are based offshore and their particular status will govern how gains or losses will be taxed. For example gains made when selling some funds will attract income tax within the UK. Investors should ascertain the type of tax treatment of any ETF they are considering investing in particularly with reference to their own individual circumstances.
With access to over 2,000 funds, we know that it’s difficult to find the one that’s right for you. To give you a head start we’ve put together an interactive tool which you can use to search, filter and compare all of our tradable funds.
Funds are traded in a different way to shares. Funds are generally priced once each day at a time called the Assured Valuation Point (AVP). The price per unit for the fund will be set by the valuation of the assets.
For most funds, if you place your order before 11.15 am, the trade will be placed at 12 noon. Any order placed after 11.15 am would not be placed with the Fund Manager until the following working day at 12 noon.
When you place an order for a fund you can only set an amount you wish to invest, rather than a number of units. The Fund Manager will receive your order at the next AVP and will invest your money at the new fund price (the future price).
You will receive a Key Investor Information Document (KIID) prior to purchasing a fund. This is not marketing material; it is required by law to help you understand the nature and risks of investing in the fund. Please read the KIID so that you can make an informed decision about whether to invest. It will not tell you everything about a fund and how it operates; should you wish further information please refer to the fund prospectus. The KIID will tell you how to obtain this.