Many investors value good active management but find the vast choice of actively managed funds daunting. There are 2,500 open-ended funds available for sale in the UK, plus another 400 investment trusts.
So you’d have to trawl through data from almost 3,000 actively managed funds and investment trusts to make your selection. That’s where our Top 100 Funds comes in –we have done the work for you.
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 is a level of subjectivity in the selection. As many of Investors Chronicle’s readers hold direct shares alongside funds in their 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 – a high conviction approach to investing, for example.
This is not a list of funds that hug their benchmark indices. We are interested in managers who have strong views and who are not constrained by benchmarks.
We like to keep expenses low as the cost of investing can really eat into returns over time, so we don’t tend to recommend very expensive funds unless there is a rock solid investment case.
The IC Top 100 Funds was launched in August 2011. Every year since, we have reviewed the selection and made a handful of changes.
How do we review the list? We take into account the body of fund research that we have conducted during the year in the magazine and website. This includes our weekly Top 100 Updates, our fund tips and recommendations, our thematic articles on fund investing and our many interviews with fund managers.
We also look at a vast number of recommendations from fund analysts, stockbrokers and independent financial advisers, who are all using different systems for assessing funds – some qualitative and some quantitative.
Using Morningstar data, we also check if our existing selections in the Top 100 Funds have beaten their benchmarks over several periods to see if any should be removed on performance terms.
This year, we have done some fine tuning of the selection – adding funds in areas that we had not previously covered, for example, emerging markets bonds. We’ve also reduced some of the manager risk in the selection – by reducing the number of funds in the selection run by the same managers or investment houses. But in some cases we’ve decided to keep two funds from exceptional managers who run slightly different investment strategies. Altogether there are twelve new funds in the selection.
We have provided the TIDM codes for investment trusts, plus the ISIN codes for the open-ended funds, to allow you to identify the funds with your platform or stockbroker. For consistency’s stake, we have used the retail accumulation share classes where possible. But if you are an income seeker you may want to buy the income share class of one of these funds. Alternatively, some platforms and stockbrokers offer institutional share classes to their clients.
This is not a list of funds that we think will do well just this year. Rather, it is a guide to the types of funds and sectors that we think you should be looking at in building a portfolio. Some of the Top 100 Funds make great core holdings for your portfolio. Others are good satellites that you should only use for a small portion of your investments.
The investment trusts that make it into our Top 100 Funds may sometimes trade on a hefty premium to their underlying net asset value. 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. There may be particularly opportune times to buy funds on the list, which we will highlight throughout the year in our weekly Top 100 Funds updates.
In some of these markets you may prefer a passive fund or an exchange-traded fund that tracks a relevant index. If so, consult the IC Top 50 ETFs for some ideas – this is particularly relevant in the case of investing in the US, for example. Alternatively, you may wish to construct a core of passive funds and select some of these active funds in this selection for satellites that you think will add value.
CHANGES TO THE TOP 100 FUNDS
Money market funds, gilt funds and individual gilts are the three main ‘safe’ investments that savers can use to house their cash if they don’t want to risk it on the stock markets. But Investors Chronicle analysis from July 2014 showed how, when purchased through the UK’s biggest DIY investment platforms, many of them provides worse returns than cash. Even if they provide decent returns, the platform fee often wipes these out.
As a result, we have removed the Money Market section from our Top 100 Funds, although we still think that Fidelity Cash Fund and Premier UK Money Market Fund are good options if you really need to use a Money Market fund.
Also, now that Individual Savings Accounts have been made more flexible, investors can transfer from stocks and shares Isas to cash Isas if they want to secure more of their money in low risk assets. They can then transfer back to stocks and shares Isas if their risk appetite goes up.
Investors with large sums of money in a Sipp can move to a bespoke Sipp for better rates on their cash. Otherwise, we think investors should take the hit on their platform’s cash rates – some are better than others, or use a low risk fund such as the Pimco Sterling Short Maturity Source ETF (QUID) which mainly invests in short-term investment grade debt denominated in sterling and is a member of the IC Top 50 ETFs. Alternatively, you could use Kames Absolute Return Bond Fund, a new entrant to this year’s IC Top 100 Funds, as a low-risk haven while waiting to buy back into equities.
There are twelve new entrants to the IC Top 100 Funds and corresponding removals – detailed in the full selection.
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.
The Top100 Funds landing page also contains a video interview with Moira O'Neill talking about the Top100 Fund 2014 selection.
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