Sectors: a nice, simple way to understand 10,000 funds

Believe it or not, the weekly data that Saltydog uses provides us with information on 100,000 funds.

Yes, you read that right. One hundred thousand!

OK, in reality we can cut that number down quite a bit.

60,000 of those funds are offshore i.e. managed outside the UK. Here at Saltydog system we only use UK -registered funds, so if we deduct the 60,000 offshore funds that immediately brings the number down to 40,000.

Then there are some technical variations in funds, where a particular fund has a few different ‘classes’ for different customers e.g. one version for institutional (professional) investors, and another for retail investors. There are a couple of other variations too.

Taking account of these fund variations means we can divide the total number by 4, which brings us down from 40,000 to 10,000 funds we can actually consider investing in.

Ten thousand. Yes, that’s still an enormous number.

So how on earth do we begin to make sense of them?

In fact it’s very easy.

The trade body for the investment management industry, the Investment Association (IA), has conveniently defined 33 different sectors of the market.

Each sector has a clear definition, stipulating which investments can and can’t be included, and if a fund wants to be listed in that sector it has to stick to the rules.

For example, a fund listed in the Tech and Telecomms sector can’t start putting some of its money into property – because that’s not what it was set up to do.

Here are a few examples of the 33 sectors specified by the Investment Association, just to give you flavour of how our 10,000 funds are categorised:

• UK Gilts
• Property
• UK Equity Income
• Global Equity Income
• European Small Companies
• North America
• Tech and Telecomms
• China/Greater China

The 33 IA sectors give the average investor more than enough ways of targetting specific areas of the markets. Whether you like UK small caps, Japan, America, property, global bonds or whatever, there’s a fund sector that covers it.

And within each sector, there are hundreds of different funds to choose from. (We’ll come to how we pick individual funds a bit later).

So that’s one key element of our analysis of all the funds: sub-dividing them into the 33 sectors.

All of the Saltydog data uses these sectors for making the most important decisions, and picking the right sector is the key to getting the best returns with the Saltydog system.

Read next > Making it easy to follow the sectors: the Saltydog groups