Often we heard or read the headline – “Internet stocks is hot”, “Biotechnology is poise for explosve growth” “Nanotechnology is the next mega trend”.
As a lay investor I often ask myself, how do I participate in these trend?
I do not have sufficient fund to buy into a single stock, let alone a portfolio (which, incidentally, should be the preferred way).
So, how can I participate in the trend? The answer for me lies with unit trust.
Before going further, I like to point out that investing into themes such as Internet, Biotechnology, Nanotechnology is but one of many strategies of unit trust investing. Depending on your explosure to unit trust, you may or may not want to invest in themes.
The careful reader will notice the “?” added to the title of this article “Unit Trust as subsititute to Investing directly into theme?”
The question here isn’t whether unit trust can act as subsititute (or proxy). It can.
The real question is how?
Here, I like to suggest 2 simple steps.
- Research the trend or theme.
- Research the fund.
Research the trend or theme
First research the trend or theme you are interested in. It could be based on some headline in the newspaper or an article you read in magazines like Forbes or Fortune. Regardless of the source, you want to find out more about it.
Take for example the Gold theme in the last few years. If you had researched and buy into the gold theme, the result is pretty good to say the least.
How do you research?
Depending on your access to informational materials, you might want to visit the local library and read recent periodicals like Times, Forbes, Fortunes. A daily diet of news also helps.
If you have access to market research report, read them but also remember that many of them are written with an intention to turn you into a customer.
Research the fund
Although this step follow the last, it is not carried out in sequence but rather in parallel.
The reason is that not all theme has a fund available .
As soon as you noted a theme or trend, find out if there is a corresponding fund.
One useful source is the fund selector at FundSuperMart. Look under specialist sector and you will a list of investing themes that has funds catering to it.
Notice from the list that you can find biotechnology and internet theme. But if you are looking for nanotechnology, you are out of luck.
But how about the technology theme? Would some of the technology funds has an interest in nanotechnology? What about under other themes?
Well, this is where fund research comes in. Start by doing a filter on the funds you want to look at and scan through their prospectus. This can be dry and boring or fun and interest depending on how you approach it.
Another way is to look at what company the fund invest in. For example, you may be aware (from your theme research) that BASF is an innovator in nanotechnology. Knowing this, you may then want to find fund with holdings into BASF.
Unfortunately I have not come across tools that can assist in searching what companies a fund invest in.
Putting it all together
With some research, you will find that even with limited capital, you can use unit trust to participate in some of the up and coming “hot” trends and theme.
Of course it is worth repeating that this is but one of many strategies. But if you like a hands-on approach and enjoy the process of researching, the result can be fun and rewarding.
This article is part of a regular column on unit trust investing by Ken of 59Ideas published on Invest Insight. You may copy and use this article if you retain this message.
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