More than 57,000 investors have looked at the Top 100 Funds over the past year and we take this responsibility seriously. I've written an extensive outline of how these funds are chosen and the factors that we take into consideration.
More and more investors are preferring to choose investments themselves, driven by four key reasons - control, convenience, cost and confidence (according to AXA Self Investor). While there is still a need for financial advice, the financial advice industry has become focused on processes such as risk profiling and asset allocation (all important), but fails when researching and advising on the best funds.
This is evident from the sheer volume of money that is invested in consistently poor performing funds. Research from website The Black Knight looked at the UK All Companies as a sector with 303 unit trust and Oeic funds with a value of approximately £133,662 million. At the end of July 2013, it found that 36 per cent or £48,191m was invested in 94 funds that have constantly performed in the third or fourth quartile, or the worst 50 per cent consistently over the last one, three and five-year periods. With so much invested in poor performing funds, consumers need to be told where to find good information about funds.
There are plenty of firms touting fund recommendations, but the problem is that many are not clear about the underlying methodology in their selection process.
Hargreaves Lansdown's Wealth 150 select list of open-ended funds is under review with negotiations ongoing to obtain the best deals. However, a document from May 2013 dents Hargreaves' claim to independence regarding fund selection. It outlines what fund managers will get from the firm the lower their charges go. For example, "extensive press comment and coverage" will be strictly the preserve of a new subset of 20-45 Core Funds. The rest will have to make do with "occasional coverage" in Hargreaves Lansdown's Investment Times publication.
The Share Centre's Platinum 120 list of recommended funds "selected from well-known companies and covering the key sectors" lacks any explanation of its methodology and is limited to a handful of managers - the list includes 12 funds from M&G alone.
In the interests of impartiality, here are five additional sources of fund selections or rating systems that we think are worth looking at in addition to the IC's Top 100 Funds:
Bestinvest's Premier Selection of top-rated funds seems a better option for investors. Forty per cent of these are investment trusts. Plus, Best invest does a good job of explaining its methodology behind the selection.
Charles Stanley Direct's Foundation Fund list is selected by its head of investment reseach, Ben Yearsley. While there is little explanation of the methodology, the list does include investment trusts.
Fund Expert is an interesting prospect. It lists best funds by sector based on its system of Dynamic Fund Selection, which is based on a type of momentum investing.
Morningstar rates funds according to an objective mathematical evaluation of funds based on their past performance, which also takes into account their risk and sales load. It also does qualitative ratings reflecting the assessment of a fund's investment merits and its capacity to perform in the future.
Financial Express offers Crown Fund Ratings a quantitative measure based on historical performance relative to an appropriate, targeted benchmark, chosen by FE.
If you would like to see specific improvements to the Top 100 Funds, please let me know. Also, if you wish to challenge the inclusion of any funds in the list or see a fund included in the list that you want to know more about, please get in touch. Moira.oneill@ft.com
