The IC Top 100 Funds represents what we believe to be the best actively managed funds across all the major sectors and asset classes. We have made sure that whatever asset you want to invest in you should find something of interest in this list.
There are 2,500 open-ended funds available for sale in the UK, plus another 400 or so investment trusts. The choice is daunting. That's where our Top 100 Funds comes in - we have done the work for you.
Of course this is not the only 'select list' of funds available to investors. But it is different in several material respects to others. Unlike lists of recommended funds from various fund platforms and stockbrokers, we are not remunerated for inclusion by the companies behind our Top 100 Funds. Our selections are completely independent.
Also, unlike some other recommended active fund lists, we don't limit our choices to open-ended funds, such as unit trusts and Oeics. As a result, more than half our chosen funds are closed-ended investment trusts - funds that trade like shares on the stock market.
But the 61 investment trusts that have made it into our Top 100 may sometimes trade on a hefty premium to their underlying net asset value (NAV). If this is the case it may be best to keep them on your watch list and delay your purchase until they are selling at a discount.
How did we pick our 100 funds?
It's not just about performance, important though that is. Keeping costs down is vital, too, as charges can really eat into returns over time. For that reason, we don't recommend expensive funds (in our book, ones that cost more than 1.5 per cent a year) unless there is a rock-solid investment case.
In addition, we look at the manager's investment style - we like managers with distinctive investment methodologies. We also consider the tenure of the manager, the consistency of returns and the liquidity of the units or shares - some successful funds impose high charges to deter new investors and some popular funds that remain open have got too large for our liking.
There is a level of subjectivity in the selection. As many of Investors Chronicle's readers hold direct share portfolios, we wanted to make sure that the funds in the Top 100 list are all offering something that investors would struggle to replicate themselves.
How do we review our Top 100 list? We take into account the body of fund research that we have conducted over the preceding year. This includes our weekly Top 100 Updates, our fund tips and recommendations, our thematic articles on funds, our interviews with fund managers and the extensive analysis for the IC Fund Awards. We also look at endless notes and recommendations from stockbrokers and independent financial advisers. All of this confirms our recommendations or throws up new potential candidates for the list. But it can also lead us to drop funds when we find something better.
This year we have changed the bond selection considerably, based on fears that big bond funds face potential liquidity problems and our preference for strategic bond funds that can go anywhere.
We have also reduced the number of commodity funds as we felt that we had too many funds with a similar remit to invest in gold miners, considering commodities should make up only a small element of investors' portfolios.
In a continuing investment climate where investors are struggling to find good income sources, we have introduced some extra recommendations for overseas income funds.
We have also introduced some extra ideas for the major markets of Japan, Europe and Asia. But we've struggled to find good funds that invest in North America. Despite the US being a major investment market, active managers struggle to beat the S&P 500 index of leading US companies. In fact, we have dropped JP Morgan American Investment Trust (JAM) as it has failed to outperform its benchmark, the S&P 500, over the three years to the end of June. Instead, we recommend that investors use passive strategies for US large caps.
We have provided the TIDM codes for investment trusts, plus the ISIN codes for the open-ended funds. For consistency’s sake, we have used the retail accumulation share classes where possible. However, if you are an income seeker you may want to buy income share classes. Or if your platform does not offer the share class I have specified you may want to use another one.
What do you do if a fund that you invest in has been removed from the list? Don't panic. Re-examine the reasons why you bought the fund - it may still be a good fit for your portfolio. If you want to switch to another Top 100 Fund then take into account any costs you may incur in switching.
All investors need to bear in mind that it's very rare for a fund manager to beat a benchmark consistently across the investment cycle. Some funds in this list will race ahead when times are good, but fall sharply when markets take a tumble. Others will preserve value in tough times, but lag benchmarks in stock market booms. So think about the timing of your purchases. Buy into market dips and trim your holding in a fund after it has had a good performance run - or in the case of investment trusts is trading at a significant premium.
The list is a guide to what we think you should start looking at in building a portfolio. In some of these markets you may prefer a passive fund or an exchange-traded fund that tracks a relevant index.
We can't predict that our Top 100 Funds will do well this year. Funds are long-term investments and you should really be prepared to invest for five years or more to get the true benefit.
Finally, do note that we can offer no guarantees. In the words of the Financial Conduct Authority, past performance is no guide to future performance. Back up our recommendations with your own research. Make sure you understand the fund, its aims and the risks involved before you invest your money. Only you can decide whether a fund meets your objectives - take independent financial advice if you are in doubt.
If you have any queries or observations about the selected funds, please email: moira.oneill@ft.com
