Funds & Inv Trusts 

Three favourite funds from five investment platforms

Moira O'Neill

We recently set our work experience student, 16-year-old Seth Hoskins, a project to research the funds that are most recommended to self-directed investors by the DIY investment platforms. He gathered together hundreds of fund select list recommendations from five platforms: Bestinvest, The Share Centre, Charles Stanley Direct, Fidelity and Hargreaves, and found that three funds are recommended by all five companies.

One is a UK equity fund, one an Asia equity fund and one a bond fund. Two of them are also members of the IC's Top 100 Funds. If you bought all three funds for your individual savings account (Isa) or self-invested personal pension (Sipp), it could be a great starting point for a portfolio.

IC VIEW: We view fund platform select lists with some caution. All platforms say their fund select lists are selected independently of any commercial interests. However, the Financial Conduct Authority has allowed platforms and discount brokers to continue to receive advertising fees from fund managers, which is a potential source of bias. Until platforms open up their data on the deals done with the providers of funds that appear on their select lists to scrutiny, there is no proof of independent selection. Nevertheless, a consensus of opinion from five platforms is worth looking at and probably represents some value to investors.

Below are the details of the three funds, together with what we viewed as the most useful commentary from the websites of the platforms that recommend them.


AXA Framlington UK Select Opportunities (GB0003501581)

The fund's objective is capital growth by investing in companies, primarily of UK origin, where the manager believes above-average returns can be realised relative to the FTSE All-Share Index. The manager, Nigel Thomas, adopts a stock-picking approach, usually driven by themes - these will vary over time and are based on where the manager sees the best growth opportunities. Like all special situation-type funds, there are no formal stock constraints. There is a bias to small- and medium-sized companies.

Bestinvest says: "Nigel Thomas has been managing money for over two decades and during that time has built one of the strongest track records in the UK All Companies sector. A pragmatic approach to selecting growth opportunities, combined with an instinct for value, sets him apart. We believe this unconstrained approach with minimal benchmark overlap can continue to add value, although increasing size as it attracts inflows means the fund will always carry a reasonable weighting to blue-chip companies."

Hargreaves Lansdown says: "Nigel Thomas is one of the longest-serving managers in the UK and we hold him in high regard. We believe his uncompromising focus on identifying growth opportunities makes this fund an excellent choice for investors seeking long-term capital appreciation."

Charles Stanley Direct says: "Nigel Thomas' mantra has always been: 'Things will not become better or worse, they will become different'. It is a philosophy he applies to the economy, industries and individual companies. The key is identifying change and how to benefit from it.

"Mr Thomas is a talented fund manager able to add value for investors through a combination of shrewd stock-picking and an ability to read the macroeconomic picture. As he puts it, 'Commerce is never a stopped clock'. By identifying businesses that can adapt positively to the prevailing environment, he should continue to outperform."

The Share Centre says: "The fund offers diversification via a multi-cap approach with a focus on smaller- and medium-sized companies. The manager tends to maintain a core of roughly up to one-third in large companies which fall within the FTSE 100, with the remainder selected from the mid- and small-cap arena. Stock selection can comprise a mixture of opportunities that may arise due to circumstances such as recovery, growth, value, consolidation or even due to a complete management change, the introduction of new products, or technological change.

"Mr Thomas is a firm believer in meeting all prospective companies, as this assists him in determining whether or not the management have the ability to deliver their business plans. The portfolio will be diversified, typically holding around 80 stocks. With its 'go anywhere' approach there are no specific stock or sector constraints, although exposure to any particular company is unlikely to exceed 3 per cent of the fund.

"For investors seeking a truly diversified multi-cap UK exposure, this fund may well suit."

Fidelity says: "We find the lead manager's considerable investment experience compelling, as well as the broader team's depth of knowledge of UK companies and their management. The fund is relatively large, with £4.3bn in assets under management. It has demonstrated consistent investment performance over various market cycles. The turnover in the fund is around 15 per cent, which implies an average investment holding period of over six years. This is refreshing when the holding period of the average fund has fallen to around 12 months."


First State Asia Pacific Leaders (GB0033874214)

This fund, which is an IC Top 100 Fund, aims to achieve long-term capital growth by investing in large- and mid-cap equities in the Asia Pacific region (excluding Japan, including Australasia). It follows a bottom-up process to seek out good-quality companies across the region.

Hargreaves Lansdown says: "This region is home to some of the most dynamic economies in the world and is often cited as having the greatest long-term growth potential.

"On the whole, countries across the region are in robust financial health, with less debt than western counterparts. They are also benefiting from increasing intra-Asian trade, with the massive markets of China and India right on their doorstep. An emerging middle class is also making them less reliant on exporting to the west and more reliant on consumption and services to drive the next phase of their growth. While we believe Asian economies make an attractive investment proposition, they are higher risk and a long-term horizon is needed."

The platform also cites fund manager Angus Tulloch's 30 years' experience of managing investments in the Asia Pacific region - and the fact that he is an investor in his own fund.

Bestinvest says: "This fund benefits from a highly experienced manager in Angus Tulloch with an absolute return mindset to investment. He offers a more cautious approach to investment in the region, with a focus on high-quality shareholder-friendly companies. Stock research is conducted by a large and well resourced team based in Edinburgh, Hong Kong and Singapore.

"As a fund manager, Angus is not known for his optimism. He tends to be bearish and believes attempts to time market investment to be folly. Consequently, Mr Tulloch likes to play it safe with his investors' money, investing in large companies with sustainable cash flows and robust balance sheets. This tends to see his funds outperforming in falling markets, but lagging when they rise strongly."

The Share Centre says: "The fund invests in approximately 60 companies, favouring mid- and large-caps, with the idea being they are held for the longer term, thereby reducing portfolio turnover. Angus and Richard Woolnough, manager of M&G Optimal Income fund, prefer to invest in companies that have a strong franchise, high barriers to entry, predictable and sustainable earnings growth, financial strength, good corporate governance and that they believe are undervalued. Considerations to the broader economic environment and company meetings are also key to their decision-making process.

"The managers look to outperform their benchmark by 2 per cent net of fees over rolling three- and five-year periods and the fund has continued to demonstrate a consistency of returns across various time periods."


M&G Optimal Income (GB00B1H05049)

The fund, which is a member of the IC Top 100 Funds, aims to provide a total return by investing across the full fixed-interest spectrum, including investment grade and high-yield corporate bonds as well as government bonds. The manager, Richard Woolnough, who has been at the helm of this fund since its launch in late 2006, also makes use of derivatives and unusually may include some equity exposure.

Hargreaves Lansdown says: "Strategic bond funds allow fund managers the freedom to invest across the fixed-interest spectrum, from traditional government and corporate bonds to higher-risk high-yield bonds that behave more like shares. They also have the ability to invest overseas, potentially benefiting from currency movements, although currency risk is limited to 20 per cent, as at least 80 per cent of the fund must be exposed to sterling/sterling-hedged investments. The additional freedom relies heavily on the skill of the fund manager in making the right calls and so it can be higher risk."

Bestinvest says: "A manager with a strong track record across all market conditions and fixed-income mandates, combined with the resources of the M&G Group, make this a powerful investment proposition. This is Richard Woolnough's most flexible mandate and makes extensive use of derivatives, so it should be considered more aggressive than his other funds, M&G Strategic Corporate Bond and M&G Corporate Bond."

The Share Centre says: "The fund has become a real behemoth within its sector. Investors should note that this fund will exhibit many similar investment themes as the other M&G funds run by Richard. However, due to the wider investment scope of this fund, those ideas and strategies may well be more aggressive within this fund."

Fidelity says: "Since its inception, this fund has been able to navigate a number of bull and bear markets, benefiting from a flexible approach. However, its investment flexibility may be challenged by its material asset growth. Rotating the portfolio between asset classes, sectors and companies will naturally be a slower process due to the fund's size. Despite the asset growth, we still believe this is a fund that is well-placed to add value through asset allocation and security selection. Nonetheless, investors in this fund ought to be mindful that in the event that liquidity in the market place temporarily dries up, as it has done periodically, they should be prepared and able to stomach the resulting price volatility."

Charles Stanley Direct says: "Over the years, Richard has demonstrated an ability to interpret correctly the economic environment, which has meant the fund has outperformed. It even had a good last year when many bond funds struggled, rising by 7.3 per cent against 2.9 per cent for the IMA Sterling Strategic Bond sector (source: FE Analytics). Of course, past performance is not a reliable indicator of future returns.

"Mr Woolnough is also confident of his ability to add value going forward, even though he expects most of the return from bonds to come from income in 2014, as opposed to any significant capital growth."


Bestinvest - Premier Selection (5 star ratings):

Charles Stanley Direct - Foundation Fund List:

Fidelity Personal Investing - The Select List:

Hargreaves Lansdown - Wealth 150:

The Share Centre - Platinum 120: