Philosophy and Investment Methodology


Philosophy and Investment Methodology


Which other information is important to know of each fund? Regardless of the information which is a requirement to have as an investment prospect, it is also important to know why do I invest, and how is the investment fund management of my election?

The first question, why do I want to invest in an Investment Fund is my decision and only I can answer this. My investment advisor can help me select the best investment alternative, once this information is known. In regard of the Investment objective, each fund, regardless the kind of asset in which I invest, must specify what it intends to achieve when investing our money.

Remember that among the investment objectives there are: Maintaining capital, capital growth, capital appreciation and capital protection from exchange rate fluctuations..

Originally, this is what I have to know before I decide to invest in a fund, as this will allow me to select the fund type or strategy I need, whether it is debt in pesos, dollars, shares or a combination of all the above.

(What is the investment philosophy of a fund?)

Secondly, the investment philosophy allows me to know in what type of specific assets the fund will invest. It is not enough only to know the type of asset, but also, in particular, the type of assets comprising the fund and its features. For example, share funds, regardless of the economic sector in which the companies participate, these may be small, medium or large companies. Also, their qualities, value companies (discount) or companies constantly recording high growth rates. As you can see, investment philosophy indicates additional information in regard to a particular asset type and, among others, helps better understand the risk profile I am taking when investing. It is not the same the risk on a large company (consolidated) than on a small company with high growth with a transaction history relatively short. When participating in a type of asset, in particular, knowing the investment philosophy will also allow me to have an idea about what to expect of the fund’s behavior. If this fund could experience more abrupt changes than the rest of its asset type or, in general, is in line with the markets behavior.

(What does investment methodology mean?)

Finally, investment methodology allows me to know the process followed by the fund manager to select the assets and their weight in the investment portfolio. This process must be based in measurable and verifiable criteria, to avoid discretion in the decision making. To have a clear methodology will also allow me to evaluate the fund’s performance, regardless of the financial markets behavior. The lack of a methodology, or a constant deviation of it, will result in mediocre results in the long term and, in general, lower to the asset type.

It is worth mentioning that not all funds must comply with the three criteria, in particular passive management funds, meaning indexed (to a particular type of asset), there is no specific investment philosophy beyond the investment of the type of asset (debt, shares, etc.). Nevertheless, in the case of investment funds known as asset management, it is necessary to have both, otherwise, it is not clear why is the manager investing the assets for, what it attempts to achieve, which are the assets that allow to achieve this particular objective, and finally, how is it done.

In conclusion, to avoid surprises or disappointments when investing, it is also important to learn about the above mentioned criteria.