Guide to Investment Fund Market Sectors

But with more than 2,000 funds to choose from, how does the novice investor make a selection?

Here UK Net Guide explains the basics markets of investment funds, whether unit trusts or open-ended investment companies (Oeics).

Unit trusts are divided into different groups, or sectors, by the Investment Management Association to allow you to make comparisons between like and like.

You need to decide before you start whether you are interested in receiving regular money from your investments (income), or whether you are happier to watch any dividends get reinvested in your fund (growth).

Then you need to choose which of the world’s stock markets you want to invest in. There is a wide choice, including the UK and Europe, the USA, the Far East and various emerging markets (which include Latin America, Africa, parts of Asia and the Middle East).

Each of these markets can then be divided into the types of shares in which the fund chooses to invest.

The main fund areas are:

UK all companies: Funds that invest at least 80% of their assets in UK shares, which have a primary objective of achieving capital growth.

UK smaller companies: Funds that invest at least 80% of their assets in UK stocks, which make up the bottom 10% of the UK stock market in terms of size.

Japan: Funds that invest at least 80% of their assets in Japanese shares.

Japanese smaller companies: Funds that invest at least 80% of their assets in Japanese equities of companies, which form the bottom 10% by size.

Asia Pacific, including Japan: Funds that invest at least 80% of their assets in Asia Pacific shares, including some Japanese shares. The Japanese element must make up less than 80%.

Asia Pacific, excluding Japan: Funds that invest at least 80% of their assets in Asia Pacific shares and exclude Japanese shares.

North America: Funds that invest at least 80% of their assets in North American shares.

North American smaller companies: Funds that invest at least 80% of their assets in North American equities of companies, which form the bottom 10% by size.

Europe, including UK: Funds that invest at least 80% of their assets in European shares. They may include UK stocks, but these must not exceed 80% of the fund's assets.

Europe, excluding UK: Funds that invest at least 80% of their assets in European shares and exclude the UK.

European smaller companies: Funds that invest at least 80% of their assets in European equities of companies, which form the bottom 10% by market capitalisation in the European market. They may include UK stocks, but these must not exceed 80% or the fund's assets. ('Europe' includes all countries in the FTSE pan-European indices.)

Emerging markets: Funds that invest 80% or more of their assets directly or indirectly in emerging markets as defined by the World Bank, without geographical restriction. Indirect investment – for example, China shares listed in Hong Kong – should not exceed 50% of the portfolio.

Want to know more about Unit Trusts, or have bid offers explained ? Read these UK Net Guide features:

• An Introduction to Unit Trusts and OEICS
• Common Stock Market Terms Explained
• The Golden Rules When Buying Shares
• How To Read The Financial Pages
• Investing In Gilts