Unit trust management companies and investment houses use different investment approaches when deciding on how best to invest investor’s money. The more common approaches includes top-down, bottom-up, value and growth. In this post, we will discuss about top-down approach in unit trust investment.

From Business Times:
Top-down approach: The overall economic environment is assessed (not individual shares). Asset allocation decisions are made to determine how much money should be allocated to various asset classes within the market. These could include which types of shares to invest in (for example financial or industrial) or which countries to target.

Also known as ‘big pictures’ approach, top-down approach refers to a fund manager who first considers which economies they believe are doing well, and then which sectors within that economy they believe are doing well and then selects stocks that fit their conclusions.

Steps of top-down approach investment:

1. Study the macro economy
Manager should look into different factors such as the growth rate of certain region (international or domestic), the political issues and regulatory environment.

2. Decide on the allocation into certain performing sectors
Manager should identify the best sector and the portion of the fund allocated for that particular sector (such as financial, manufacturing, electronic etc).

3. Select the best stock within that sector
Based on the stock’s fundamental such as price-to-earning ratios and comparing the similar companies, the manager can then decide which is the best investment in a long term perspective.

Example of funds that practice top-down approach:
OSK-UOB Index Covered Fund
Mayban Dana Yakin

In the coming weeks, we will discuss about other investing approaches practiced by unit trust fund manager.

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More about unit trust investment:
How to monitor unit trust portfolio using Signal Invest
Everything about Unit Trust in Malaysia
The secret of investing in Unit Trust
Ringgit or Dollar Cost Averaging
What do I look for in a unit trust fund?
Are Unit Trusts Lousy Investment?

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KCLau
KCLau

Personal finance author and trainer

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