A research perspective on finance company investing

Comment: Research house FundSource provides its view on investing in finance companies.

Thursday, 15 September 2005

FundSource’s research into finance companies, which is made available to investment professionals on an ongoing basis, has shown that clearly there are quality finance company investments and some which are more risky.

While there are individual company risks to consider, they are not industry pervasive.

In that sense the finance company sector is no different than the share market or managed funds.

Considerable diversity in opportunity and risks are also evident there.

What is crucial is that, advisers and investors make investment decisions on the merits of each individual investment.

In-depth research into specific risks that are relevant to each investment is required to make informed decisions,regardless of the type of investment, i.e., shares, funds, debentures, property etc.

In line with this philosophy, FundSource views generalised (‘sweeping’)perspectives on any investment sector as providing little useful insight to investors.

By implication it also converges the perceived opportunities and risks in a market sector into a homogenous mass.

FundSource’s research clearly shows this is inaccurate when applied to finance companies. Ultimately, the end goal of any research initiative is to identify the better-managed options and provide informed insights within anappropriate assessment framework – the key is to differentiate.

How each investment then fits into an investor’s portfolio should be based on individual means, goals and risk preferences. For some investors, direct investments may prove better and for some others, managed funds may be the way to go.

To not consider all available investment options in fact brings with it an opportunity cost, of missing out on some great investment choices.

Accessing the well-managed provider, identifying the quality products and putting them all together is the key to successful investing.

Towards this end investors should seek qualified financial advice. For the financially more astute, ensure that you have access to all the relevant information.

FundSource has not been invovled with ASB’s research on finance companies.

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