Unit Trusts

Unit Trusts are also known as funds. The basic premise is that the unit trust buys shares in various companies and then sells shares (units) of the fund to investors. The advantage of funds, as compared to buying sells directly in the companies yourself, is that the fund manager can buy the shares more cheaply as he buying in bulk and pass some of this benefit on to the individual investors.

Unit Trusts can be actively or passively managed.

An actively managed fund is one where the fund manager evaluates the performance of individual companies from time to time and may drop them from the fund or may buy shares in other companies.

A passively managed fund is usually linked to one of the main stock market indices e.g. FTSE 250. The constituent companies within the FTSE 250 are only changed every 3 months or so. At this time, the passively managed fund will sell shares in those companies who are no longer in the FTSE 250 (i.e. are no longer one of the top 250 companies trading on the main stock market that have the largest market capitalisation) and buy shares in those companies who have been promoted in to the FTSE 250.

Passively managed funds tend to have cheaper buy/sell costs than actively managed funds. Active fund managers like to highlight when they've done better than the main indices or choose statistics which put them in a good light e.g. they can vary their performance figures to highlight that they've beaten the indices in the last 6 months, last year, last 3 years, last 5 years or since the fund started. Often they'll have done better with 1 of these statistics, rarely is it true that they've done better with all of these ranges. For this reason, in my opinion, passively managed funds are better in the long run, whilst if you're a short term investor you may wish to choose an active fund whose manager is currently running a bit of luck.

Actively managed Unit Trusts often target particular sectors or countries or bands of countries e.g. New Star Technology, Gartmore China Opportunites, JPM Europe etc. Popular targets include income (as opposed to growth), small companies, emerging markets etc.

A fund that is targetting growth typically has the suffix ACC added to it, whereas a fund which targets income will usually have the suffix INC added to it. Growth funds will buy extra shares with any dividends paid by companies that they invest in, whereas Income funds will pay out, usually twice yearly, all of the share of dividends which have occurred during the period. Unless you need the income, it's best to re-invest the income in shares yourself, in any case.

A lot of unit trusts have a bid and an offer price. The bid price is what you'll receive when you sell the units and the offer price is what you have to pay to buy the units. The difference between the bid and offer prices is known as the spread. The spread can vary but effectively represents the commission that the market maker (company which buys shares from sellers and sells shares to buyers) makes on each trade.

You can create portfolios to hold all of your fund information on sites such as http://www.iii.co.uk/, http://www.trustnet.com/.

You can find up to date news about the financial industry and it's effect on the stock market on sites such as http://advfn.com/, http://cityam.com/, http://uk.finance.yahoo.com/.

You can find more general news on sites such as http://www.fool.co.uk/, http://ft.com/, http://moneyweek.com/, http://cnnmoney.com/, http://www.investorschronicle.co.uk/ .