An actively managed fund is a great option for an Isa because with one holding you can access a diversified portfolio of hundreds of assets. This means that even if you only have a small amount to invest with the right fund you can achieve portfolio diversity.
Funds also cover all manner of investments you might find hard to access individually, so they can be a great way to access more unusual areas such as emerging markets and smaller companies.
Below are 10 recommendations from wealth advisers focused on five areas: growth, income, wealth preservation, diversification and contrarian.
GROWTH
31 Franklin UK Smaller Companies (GB00B7FFF708)
Adrian Lowcock, head of investing at AXA Wealth, says: "Although small caps haven't fallen as much during the 2016 sell-off and investors are not accessing this segment of the market at more attractive prices, I feel smaller companies are a great long-term growth story. Franklin UK Smaller Companies' approach is very much about making long-term investments in companies with attractive risk/reward profiles.
"The fund's managers, Richard Bullas and Paul Spencer, are willing to take a contrarian stance when market mispricing creates outstanding investment opportunities. While economic and industry drivers are important considerations, the fund is built from the bottom up, with each stock included in the portfolio on its own merit."
32 Franklin UK Mid Cap (GB00B7BXT545)
Darius McDermott, managing director at Chelsea Financial Services, says: "Unlike some other mid-cap funds Franklin UK Mid Cap is a pure play on the FTSE 250. The portfolio itself is concentrated with 35 to 45 stocks, which reflects the manager, Paul Spencer's, high conviction approach.
"His process works well across a wide range of market conditions and he is supported by a small, but highly competent team from Franklin's base in Leeds. He has managed this fund since February 2006 and, while he has benefited from the strong performance of the FTSE 250 during his tenure, this should not detract from the fact that he has demonstrated considerable skill in the management of this fund. He has achieved very impressive performance figures, both relative and absolute, during this period."
INCOME
33 PFS Chelverton UK Equity Income* (GB00B1FD6467)
Mr Lowcock says: "PFS Chelverton UK Equity Income has three objectives: capital preservation, increasing dividend payments by the rate of inflation, and an increase in capital values. To achieve this its managers will invest in companies that can demonstrate they have strong balance sheets and cash flows, with the prospect of growing earnings supported by dividend payments.
"The fund has a focus on small- and mid-sized companies that offer a prospective yield that is 50 per cent greater than the FTSE Mid and Small Cap average yield."
34 Premier Optimum Income (GB00B3DDDX03)
Rob Pemberton, investment director at HFM Columbus Asset Management, says: "Premier Optimum Income is a UK equity income fund that has an interesting tilt away from the mega-cap FTSE 100 companies that many UK equity income funds focus their assets on. Premier Optimum Income has a larger than usual weight to mid- and small-cap stocks, which helps to diversify away from the usual dividend payers, while an allocation to continental Europe further broadens the range of stocks in which it invests.
"This fund also uses a covered call strategy to enhance its yield, whereby it uses derivatives to forego some future, but unknown, level of capital growth in return for a known level of premium income. As such it is currently yielding in excess of 6 per cent.
"While its differentiators give it a higher risk/reward profile than many other UK Equity Income funds, they also make Premier Optimum Income a useful complement alongside some of the other, better known, UK equity income funds you might already hold in your portfolio, such as Invesco Perpetual Income (GB00BJ04HX60) and High Income (GB00BJ04HQ93), CF Woodford Equity Income* (GB00BLRZQB71), Artemis Income (GB00B2PLJJ36), and Threadneedle UK Equity Income (GB00B8169Q14)."
WEALTH PRESERVATION
35 Troy Trojan (GB00B01BP952)
Heather Ferguson, investment analyst at Hargreaves Lansdown, says: "Troy Trojan Fund, run by Sebastian Lyon, is one our favoured options for wealth preservation as the avoidance of permanent capital loss is of paramount importance, followed by growth generation.
"Around 60 per cent of this fund is in cash, bonds and gold, with the remaining 40 per cent invested in equities. The defensive nature of the cash, gold and bond holdings is likely to shelter the fund from falls in equity markets and Mr Lyon has the flexibility to shift this asset allocation according to his outlook. He has successfully outperformed during two periods of falling markets: the dot-com bust in 2000 and the financial crisis in 2008."
36 Newton Real Return* (GB00B8GG4B61)
Mr Pemberton says: "Newton Real Return has an excellent long-term track record of producing positive annual returns by investing in a combination of equities, fixed interest, gold and cash. The fund also uses index futures to help protect against large equity market falls. Newton Real Return's experienced manager Iain Stewart, consistent track record and flexible investment mandate, make this a solid choice for investors looking for a conservatively managed fund with an excellent record of both preserving and growing capital."
DIVERSIFICATION
37 First State Global Listed Infrastructure* (GB00B24HJL45)
Jason Hollands, managing director at Tilney Bestinvest, says: "First State Global Listed Infrastructure Fund invests in the shares of publicly listed infrastructure companies such as airports, marine ports, toll roads, rail networks, utilities and telecommunications networks, so it is ultimately a thematic equity fund. These types of companies tend to have very robust earnings throughout the economic cycle. Typically their management of operational projects is secured under very long-term contracts which include annual inflation adjustments on the revenues they can earn, which should provide a high degree of resilience at a time when the global growth outlook is weakening.
"Large holdings in the fund include Australian-listed Transurban (Au:TCL), which manages toll-roads in Australia and the US; Spanish firm Abertis (Sp:ABE), which operates motorways in Europe and the US; and American Tower Corporation (US:AMT), which operates wireless and broadcast communication towers in the US, Mexico and Canada."
38 Architas Diversified Real Assets (GB00BRKD9X30)
Mr Lowcock says: "The aim of Architas Diversified Real Assets is to have a portfolio of investments which over the longer term are uncorrelated to equities and bonds. The fund invests in infrastructure projects, airplane leasing and catastrophe financing, producing a portfolio that aims to provide a stable long-term dividend yield of around 3.6 per cent. This type of fund would be a diversifier to existing equity income and bond funds, and should provide some protection from volatile markets."
CONTRARIAN
39 Fidelity Emerging Markets (GB00B9SMK778)
Mr Hollands says: "I think the key contrarian bet at the moment would be emerging markets, particularly in a fund with exposure to China. Emerging markets have been very deeply out of favour and the newsflow from China has been poor for months.
"However, the bad news is - arguably - fully priced in to emerging markets. An additional reason why you could take a contrarian punt here is that markets are reappraising assumptions made about a US rate hiking cycle: last year mounting expectations that the US would commence a normal interest rate hiking cycle led to a strengthening of the dollar. This was very painful for emerging markets companies that had borrowed heavily in dollars during years of low interest rates, pushing up the costs of servicing this debt.
"With the deteriorating outlook for global growth, and signs that the US economy is stalling, the Federal Reserve's December rate hike could turn out to be a one-off or even reversed, but we certainly don't see an aggressive tightening of monetary policy any time soon. The dollar has already weakened a little and more of this could prove a relief to emerging markets.
"So a fund that I suggest for accessing emerging markets, which has 18.4 per cent of its assets in China, is Fidelity Emerging Markets managed by Nick Price."
40 Artemis UK Special Situations (GB00B2PLJQ03)
Mr McDermott says: "This unconstrained, multi-cap fund, with a mid- and small-cap bias, has been run by Derek Stuart since launch. He deliberately seeks out companies going through a turnaround and change, and has a contrarian value style. Consequently, companies that have had a change of management or are introducing a new product will frequently feature in the portfolio.
"Mr Stuart is a highly capable fund manager who brings a wealth of experience to the table. The fund has been remarkably consistent during his years at the helm and he has demonstrated he can add value across a range of market conditions."
Fund performance
| Yield (%) | 1 year total return (%) | 3 year cumulative total return (%) | 5 year cumulative total return (%) | 10 year cumulative total return (%) | Ongoing charge (%) | |
| Franklin UK Smaller Companies W Acc | 1.26 | 6.4 | 55.4 | 55.4 | 70.9 | 0.83 |
| Franklin UK Mid Cap W Acc | 2.08 | -1.5 | 32.1 | 78.5 | 214.2 | 0.82 |
| PFS Chelverton UK Equity Income B Inc | 5.36 | 3.7 | 42.8 | 94.1 | NA | 0.92 |
| Premier Optimum Income C Inc | 8.27 | -4.3 | 25.9 | 50.5 | 30.7 | 1.02 |
| Troy Trojan O Acc | 0.47 | 5.5 | 8.8 | 27.1 | 86.4 | 1.05 |
| Newton Real Return Instl W Net Acc | 2.55 | 2.1 | 10.9 | 17.8 | 72.2 | 0.79 |
| First State Glbl Lstd Infras B GBP Acc | 3.04 | 3.3 | 35.5 | 63.8 | NA | 0.83 |
| Architas Diversified Real Assets D Inc | 4.35 | 0.1 | NA | NA | NA | *1.3 |
| Fidelity Emerging Markets W Acc | 0.99 | -9.9 | 3.3 | 12.9 | NA | 1.04 |
| Artemis UK Special Situations R Acc | 2.56 | -4.7 | 15.5 | 34.7 | 67.9 | 0.81 |
| FTSE All Share TR GBP | -10.6 | 7.2 | 25.3 | 53.7 | ||
| FTSE 250 TR GBP | -3.9 | 27.6 | 61.9 | 123.6 | ||
| Numis Smaller Companies Ex ICs TR GBP | -3.2 | 25.4 | 62.2 | 115.3 | ||
| FTSE World TR GBP | -2.4 | 25.3 | 46.6 | 88.6 | ||
| MSCI EM NR GBP | -15.3 | -17.5 | -11.2 | 48.6 |
Source: Morningstar, *Hargreaves Lansdown
Performance data as at 24 February 2016
