Fund Focus: five principles to boost your portfolio

It’s five weeks since I joined interactive investor, ending a six-year stint on Investors’ Chronicle magazine. Add that to time at other investment publications and I’ve spent a decade analysing funds.

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I’ve learned some useful tricks of the trade and witnessed multiple seismic events – from Brexit to the Neil Woodford scandal, the pandemic, the Ukraine war and the clamour for artificial intelligence (AI) plays. This new column, “Fund Focus”, will share some of the insights gained and take a closer look at the funds space.

Let’s kick off with some big things anyone buying funds should remember to ask themselves. These five guiding principles should give your portfolio a boost.

Question one: why am I buying (or holding) this?

Investing can be an impulsive affair, with many of us buying in on the spur of the moment.

This isn’t necessarily a bad thing: investors who, say, piled into defence funds this year have in many cases made a decent profit.

But loading up on investments without considering your rationale can lead to a mishmash of holdings that don’t always work well together. Thinking about the role a fund serves in a portfolio is a useful way of asking whether you really need to buy it, and gives you a way to assess its performance over time.

Some funds have a more obvious function than others. Investors may want a UK income play such as City of London Ord (LSE:CTY) to pay a decent dividend, and to increase that over time. It has done so, even if the payout has not risen that spectacularly versus inflation lately.

Elsewhere, investors might want a wealth preservation fund such as Ruffer Investment Company (LSE:RICA) or Capital Gearing Ord (LSE:CGT) to behave defensively when equity markets fall, and for the likes of a gold exchange-traded fund (ETF) to do the same. The latter may be in question now the gold price is so high.

Question two: is this core or satellite?

Some of the best investment principles are sensible but unglamorous, and the “core/satellite” ethos is exactly that.

Investors would do well to have the chunk of their portfolio (perhaps 70% or 80%) in “core” holdings such as diversified global equity funds. The balance can go into more niche holdings including racy options like smaller company funds, the future-facing Scottish Mortgage Ord (LSE:SMT) and thematic picks such as Seraphim Space Investment Trust Ord (LSE:SSIT). A satellite holding doesn’t want to be more than a few per cent of your assets.

Such holdings can really race away at points, meaning you might need to take profits to keep your portfolio balanced. Seraphim is a good example here, with the shares having returned around 60% so far in 2025.

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Question three: what can I learn from this fund?

Even if you don’t want to buy a fund, remember that you can still mine it for inspiration.

To give one example, I’m not personally a fan of thematic ETFs: I worry that they tend to launch, and invest, when both the hype and valuations around a theme are at their peak.

But looking at what such funds hold can show you what stocks are seen as a play on, say, AI or defence. Some of these might be potential buys for you, or crowded trades to avoid.

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Question four: am I worrying about the right thing?

The investment trust sector has had a challenging few years, reflected in wide share price discounts to net asset value (NAV). While discounts offer you a “cheap” way in, some in the investment industry see a wide discount as a failure.

I would worry less about this. Discounts do leave investment trusts vulnerable to acquisition attempts and activists such as Saba Capital, but such things can drive share prices up. And a trust can languish on a huge discount but still give you great returns: think of private equity play Oakley Capital Investments Ord (LSE:OCI), which sits on a discount of more than 23% but has returned in share price total return terms roughly 120% over five years.

I similarly worry less about a fund’s fees than some others. Active managers should certainly be competitive here, and cut their fees as a fund grows. But it’s performance, and whether a fund is serving its purpose, that matters most to me.

Question five: how involved do I want to be?

A point sometimes overlooked by financial advisers is that some people invest not just as a way to achieve their financial goals, but also as a hobby. Assessing your own appetite for the legwork involved in investing can inform what you buy and hold.

A keen hobbyist may well want to buy individual shares, scout for oversold investment trusts and read through accounts and investment commentaries. But those with less time (or zeal) can go simpler.

Buying a fund is simpler than picking individual shares, and buying something like a tracker fund is simpler than monitoring an active portfolio. While you do want the best returns, it can also make sense to invest with such considerations in mind.