The difference between 'top down' and 'bottom up' investing

Top-down and bottom-up investing are two approaches to buying stocks. So, what's the difference and which is better? Cris Sholto Heaton investigates.

Read the marketing material for any fund and you'll often find the manager saying that they take either a "top-down" or a "bottom-up" approach. Sometimes they claim to do both: "the fund combines a top-down approach to country selection with a bottom-up approach to security selection" is a favourite with funds that are allowed to invest in shares around the world.

For anybody who isn't familiar with investment jargon, this distinction can seem baffling. So what's the difference between top down and bottom up and is one better than the other?

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.