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.
See the introduction for more on how we chose the funds .
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. However, 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 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.
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You can view our Top 100 Funds selection from 2013 here.
You can view our Top 100 Funds selection from 2012 here.
BOND FUNDS (10 funds)
Most investors should have a portion of their portfolio allocated to fixed income in the form of government or corporate bonds – especially if income is your objective.
We think strategic bond funds are the best one-stop option for your bond exposure, as they have the ability to invest across the spectrum of bonds, both government and corporate, depending on market conditions.
A downside to the broad investment mandate of strategic bond funds is that hey can be very different to each other in terms of underlying investments and risk. Strategic bond funds can also make use of derivatives such as swaps for protection and asset allocation, as well as extra hedging. Plus some have the ability to allocate a portion of the portfolio to equities – so if you want pure bond exposure double check the strategy and holdings.
CHANGES: We had to remove Legal & General Dynamic Bond Trust from the list as its manager Richard Hodges has left and performance has not been great. We also ditched Kames High Yield Bond fund in favour of a safer option of Kames Absolute Return Bond fund, which we felt was a safer option for investors worried about prospects for bonds once interest rates start to rise. We’ve also added a fund for emerging markets bond exposure. Investors should also note that M&G International Sovereign Bond Fund has changed its name to M&G Global Government Bond Fund.
M&G Optimal Income (GB00B7FM9R94)
The fund is a fully flexible bond fund, allowing investment across a broad range of fixed-income assets according to where the fund manager, M&G’s bond guru, Richard Woolnough identified value. It is a very large fund but although it will be at least 50 per cent invested in debt instruments, Mr Woolnough may also invest in other assets including collective investment schemes, money market instruments, cash, near cash, deposits, equities and derivatives. Derivative instruments may be used for both investment purposes and efficient portfolio management.
Henderson Strategic Bond (GB0007495293)
The fund aims to provide a return by investing in higher yielding assets including high yield bonds, investment grade bonds, government bonds, preference shares and other bonds. It may also invest in equities. It is managed by fixed income veteran John Patullo, who is also Henderson's head of retail fixed income.
Jupiter Strategic Bond (GB00B2RBCS16)
This fund has built up a good track record under the management of Ariel Bezalel. A new entrant to the Top 100 Funds, the fund aims to achieve a high income with the prospect of capital growth, by seeking out the best opportunities within the fixed interest market globally. This is achieved via investment in assets including high yield bonds, investment grade bonds, government bonds, preference shares and convertible bonds. The fund doesn't use derivatives for investment but does use them for efficient management of the portfolio, for example, to hedge exposure to euro-denominated bonds back into sterling.
M&G UK Inflation-linked Corporate Bond Fund (GB00B7FV9F40)
This fund invests in a spread of fixed-interest securities that should perform well when inflation is high or rising. The fund aims to protect the value of capital and income from inflation by generating a return consistent with or greater than UK inflation over the medium to long term.
M&G Global Government Bond (GB00B7J76C49)
This fund invests primarily in investment grade sovereign debt securities denominated in the currencies of the major industrialised nations, with the exception of the UK. The Fund may also invest in other assets including government and public securities, collective investment schemes, other transferable securities, other debt instruments, cash and near cash, deposits, warrants, money market instruments and other derivative instruments. It aims to maximise total return and was shortlisted for Best Bond Fund at our Fund Awards 2012.
Kames Absolute Return Bond Fund (IE00B6SPX874) NEW ENTRANT
The fund aims to generate positive absolute returns for investors over a rolling three-year period, irrespective of market conditions. It invests in debt in all corners of the globe, and in any currency, although the vast majority of its currency exposures are in hedged sterling. It invests in everything from AAA government bonds through to high yield and emerging market bonds. It can invest in all types of fixed and floating rate fixed income securities, and it also uses financial derivatives to run a long/short strategy. However, the fund has risk controls that make it a particularly safe investment. This fund is unlikely to shoot the lights out in terms of performance, but if you’re looking for a safe cash replacement for your portfolio, it is worth considering.
New City High Yield Fund (NCYF)
This is one of the longest established trusts focusing on debt. It aims to provide investors with a high gross dividend yield and the potential for capital growth by investing in high yielding fixed interest securities.
NB Global Floating Rate Income (NBLS)
Launched in April 2011, this fund targets senior corporate loans. It aims to provide shareholders with regular dividends, at levels that are sustainable, while growing the capital value of its investment portfolio over the long term by mainly investing in floating rate senior secured loans.
Henderson Diversified Income (HDIV)
The fund aims to provide shareholders with a high level of income and capital growth over the long term by investing selectively across fixed income asset classes including secured loans, high yield and investment grade corporate bonds. The fund is managed by John Pattullo and Jenna Barnard.
Aberdeen Emerging Markets Bond Fund (GB00B5BV9P41) NEW ENTRANT
This fund is worth considering if you’re looking to diversify the bond exposure in your portfolio and have a high appetite for risk. It offers an exceptionally wide selection of emerging markets debt exposures without extortionate costs, is well diversified among emerging markets and has an approach to currency risk management that will suit investors looking to reduce volatility.
WEALTH PRESERVATION (5 funds)
For most investors, preserving their hard-earned assets is a priority. Many funds with ‘cautious’ in their name have lost investors money, plus many so-called ‘absolute return’ funds have not lived up to their names. So you have to tread carefully. Our selection of five funds that we think stand the best chance of preserving your capital has not changed from last year:
RIT Capital Partners (RCP)
An investment trust that invests globally across a wide range of assets to prioritise preserving investor’s capital over profit maximisations. To achieve long-term capital growth through international quoted securities & unquoted holdings.
Personal Assets Trust (PNL)
A global investment trust that has been very successful at limiting the downside. Its cautious approach means performance can lag when markets are rising, but long-term performance has been strong.
Protect and increase shareholders' funds over the long term. The company uses the FTSE All-Share Index as its comparator for the purpose of monitoring performance and risk.
Newton Real Return (GB0001642635)
Is one of the few absolute return funds that have delivered on its goals. It delivered positive returns even during the financial crisis in 2008. It invests predominantly in a portfolio of UK and international securities. But it may also invest in deposits, money market instruments, derivative instruments, forward transactions and collective investment schemes.
Ruffer Investment Company (RICA)
The fund is conservatively managed but has delivered well on its investment objective. It looks to generate annual absolute returns after all expenses of more than twice the Bank of England’s base rate, through investing in internationally listed securities and bonds.
Invesco Perpetual Distribution (GB00B1W7J089)
This fund aims to achieve a balance of income and capital growth through a portfolio of primarily UK equity and fixed interest securities. In pursuing this objective, the fund managers may include investments that they consider appropriate, which include transferable securities, money market instruments, warrants, collective investment schemes and deposits. It is cautiously managed, employing the talents of Invesco Perpetual’s fixed-interest team, comprising Paul Causer and Paul Read, together with Ciaran Mallon covering UK equities, taking over from Neil Woodford in October 2013.
UK EQUITY INCOME FUNDS (8 funds)
Dividends are very important for equity investors seeking income. But for growth investors they can also be reinvested to boost growth over time, so UK equity income funds can be used as core holdings. Investors with large direct holdings in FTSE 100 companies should watch any overlap with their existing portfolio.
We’ve tried to avoid equity income funds whose top 10 holdings read too much like the top income payers in the FTSE 100 index.
CHANGES: We dropped Fidelity Enhanced Income from the selection as the fund had underperformed and was too similar in strategy to Schroder Income Maximiser. We also had to make room for Neil Woodford’s new fund launch.
Sadly John McClure the co-manager of Unicorn UK Income died and so we have removed this fund from the selection. In its place, we have introduced the Diverse Income Trust.
CF Woodford Equity Income (GB00BLRZQ513) NEW ENTRANT
This fund is managed by Neil Woodford, former equity income star manager at Invesco Perpetual who returned 2,224 per cent between February 1988 and the end of September 2013 as manager of the Invesco Perpetual High Income Fund. The fund is the first offering for Mr Woodford’s new asset management company. It targets a 4 per cent yield and Mr Woodford expects to grow the distribution, which will be quarterly. The costs are well controlled and the fund has exceptional transparency - it discloses all holdings on a monthly basis.
Schroder Income Maximiser (GB00B0HWJ904)
The fund’s objective is to provide income with potential for capital growth primarily through investment in equity and equity-related securities of UK companies. The fund will also use derivative instruments to generate additional income. The portfolio is made up of UK equities along with a covered call strategy. The fund regularly enters into contracts under which it effectively agrees to exchange the profit on any stock exceeding a level of, say for example, 10 per cent, for an agreed fee. This premium is used to boost the income on the fund.
Acorn Income Fund (AIF)
The fund targets income and capital growth, by investing primarily in smaller UK companies. The portfolio is split 80 per cent in equities and 20 per cent in fixed interest. The fund also has high levels of gearing making it a high risk choice.
Diverse Income Trust (DIVI) NEW ENTRANT
This fund offers something a bit different in the income space in seeking income from companies across the market capitalisation spectrum. Despite being in the UK Equity Income investment trust sector, it has around three-quarters of its assets in mid-, small- and micro-cap shares. It has grown its dividend at a good rate every year and grew in size after absorbing Miton Income Opportunities Trust in September 2013. Fund manager Gervais Williams has a great reputation, particularly for investing in the small-cap arena.
City of London Investment Trust (CTY)
The trust aims for long term growth in income and capital from a broad spread of large blue-chip and medium-sized UK-listed companies – plus it has scope to invest in overseas stocks. It is managed conservatively and is noted for having the longest record of raising dividends among all investment trusts. Despite concerns that it is too ‘index-like’ it is good for those wanting predictability of income and returns. Earlier in 2013 it removed its performance fee, making it a very cheap option.
Lowland Investment Company (LWI)
This is a highly volatile fund, but over the long term it has made very strong cumulative returns as well as some income. It aims to give shareholders a higher than average income return with growth or both capital and income over the medium to long term from a portfolio of UK equities.
Murray Income Trust (MUT)
The trust aims to achieve a high and growing income combined with capital growth through investment in a portfolio primarily of UK equities, with some small exposure to overseas equities. It invests in good-quality household-name companies with strong competitive positions and balance sheets, boasts an experienced board, and "is conservative, with a small c".
Perpetual Income & Growth (PLI)
The trust is a dividend hero for income investors. It aims to provide share holders with capital growth and real growth in dividends over the medium to longer in the UK equity and fixed interest markets. It is managed by Mark Barnett, a senior member of Invesco Perpetual’s UK team.
OVERSEAS EQUITY INCOME FUNDS (10 funds)
We believe that investors should diversify their income sources and reduce their reliance on UK dividends. For example, Asia and North America are good hunting grounds for income-seekers.
Changes: We have added two funds to this section, to offer more options for investors who want to diversify their income exposure overseas.
M&G Global Dividend (GB00B46J9127)
The fund aims to deliver a dividend yield above the market average, by investing mainly in a range of global equities. It aims to increase distributions over the long term whilst also maximising total return (the combination of income and growth of capital). The Fund’s exposure to global equities may be gained through the use of derivatives and it may invest across a wide range of geographies, sectors and market capitalisations. Fund manager Stuart Rhodes chooses companies on their merits rather than by sector or geography.
Newton Global Higher Income (GB00B5VNWP12)
The fund's objective is to achieve increasing annual distributions together with long-term capital growth from investing predominantly in global securities. It focuses on sustainable dividends, reinforced by its strict yield discipline, which Newton says has given it notable resilience in difficult market conditions.
Lazard Global Equity Income (GB00B24DPX62)
The fund aims to generate substantial income as well as long term capital growth. It will invest in global securities, seeking to diversify income stream through exposure to a portfolio of high-yielding securities, comprising primarily of equities, a proportion of which may be in emerging markets.
Threadneedle Global Equity Income (GB00B1YW3W13)
The fund aims to achieve a high and growing income over the long term combined with prospects for capital growth. The investment policy is to invest no less than two-thirds of the gross assets of the fund in global equities. Income will be in the form of dividend distribution. The managers also have the ability to invest up to one third of the total assets of the fund in derivatives, forward transactions and other securities (including fixed interest securities and money market securities) deposits and cash.
Newton Asian Income (GB00B0MY6Z69)
The fund offers income and growth from Asia Pacific non-Japanese equities. It may also invest in collective investment schemes and has one of the longest track records among income-funds focused on the Asia Pacific ex-Japan region.
Aberdeen Asian Income Fund (AAIF)
This investment trust aims to provide investors with a total return primarily through investing in Asian Pacific securities, including those with an above average yield. It has a very good performance record but often trades at a premium to the underlying net asset value.
JP Morgan US Equity Income (GB00B3FJQ045)
The fund aims for long term capital growth as well as income from the world’s largest economy. The fund is managed by Clare Hart and Jonathan Simon out of New York.
Middlefield Canadian Income (MCT)
If you are looking for both a new source of income and a relatively safe haven then consider the attractions of Canada via this investment trust. It aims to provide shareholders with a high level of dividends and capital growth over the longer term, by investing in companies and real estate investment trusts (REITs) domiciled in Canada.
Artemis Global Income (GB00B5V2MP86)
The fund is better diversified then some global equity income funds, using its full global remit to exploit income opportunities – meaning it is less biased to the US, in terms of global allocation. It has good performance and an attractive yield, with a relatively low exposure to the UK, making it a good complement to UK equity income funds. Its manager, Jacob de Tusch-Lec looks for companies that can grow and sustain their dividends over time, aiming for a good, steady and rising income, as well as prospects for capital gain. The fund is relatively new as it was launched in July 2010, but has an experienced managed and a proven investment approach.
F&C Managed Portfolio Income (FMPI)
This investment trust would make a good core holding for income seekers. It aims to provide income shareholders with an attractive level of income, with the potential for income and capital growth from a diversified portfolio of investment companies. The Income Portfolio invests in a diversified portfolio of at least 25 investment companies that have underlying investment exposures across a range of geographic regions and sectors and that focus on offering an income yield above that of the FTSE All - Share Index.
UK EQUITY GROWTH (10 funds)
Many investors choose to stick with that they know best – their home market. Here are some funds that are working hard to boost their investors’ capital by investing in UK companies.
Changes: We’ve had to drop Edinburgh Investment Trust as Neil Woodford is no longer manager. This trust now shares the same management as Perpetual Income & Growth and we didn’t want to introduce duplication to the list.
To fill the gap, we’ve introduced a fund that tries to replicate Warren Buffett’s investment strategy for the UK market.
Liontrust Special Situations (GB00B0N6YF70)
This is a growth fund that invests primarily in a concentrated portfolio of medium-sized and smaller UK companies' shares. The managers look for three key qualities in the companies they buy. The first is intellectual property in the form of patents, branding and copyrights, all of which enhance pricing power beyond other companies, they argue. The second is a strong distribution network - as these are valuable and difficult to replicate. And the third is high contracted recurring revenue - they want 70 per cent of income to come from regular contracts. They won't consider a stock unless they have at least one of these qualities - and their best stocks possess all three.
Marlborough UK Micro Cap Growth (GB00B02TPH60)
The fund, managed by Giles Hargreave, aims to provide a total return of capital and income in excess of that achieved by the FTSE Small Cap Index (excluding investment companies) over the medium to long term. It invests primarily in UK companies that have a market capitalisation of £250m or less at the time of purchase. A considerable proportion of the portfolio will be invested in smaller companies with a market capitalisation of less than £150m at the time of purchase.
Standard Life UK Smaller Companies Trust (SLS)
The trust aims to achieve long term capital growth through investing in small UK quoted companies. It is managed by Harry Nimmo, one of the best small company fund managers and was shortlisted for Best UK Equity Growth Fund at the IC Fund Awards 2013.
BlackRock Smaller Companies Trust (BRSC)
The trust aims to achieve achieve long term capital growth for shareholders through investment mainly in smaller UK quoted companies. Its manager, Mike Prentis, is highly regarded in the industry and the trust's track record is impressive. It was shortlisted for Best UK Equity Growth Fund at the IC Fund Awards 2013.
Henderson Smaller Companies Investment Trust (HSL)
Launched in 1887, the trust has been managed by Neil Hermon since 2002. It aims to maximize shareholders total returns by investing in smaller companies those are quoted in the United Kingdom. It won Best UK Equity Growth Fund at the IC Fund Awards 2013 for its strong performance and excellent communications to investors.
Finsbury Growth and Income Trust (FGT)
The trust favours undervalued companies with strong brands or powerful market franchises, looking for attributes such as the ability to prosper through business cycles for many years; grow earnings every year; and generate earnings growth without making heavy balance sheet investment. Fund manager Nick Train holds shares for the long term regardless of short-term volatility, aiming for them to double or more in value over time. This results in extremely low portfolio turnover, which saves on transaction costs and has contributed to excellent performance.
Capital Gearing Trust (CGT)
The trust aims to achieve capital growth in absolute terms through investments in closed-end funds and other investment vehicles. It invests in equities or property, with a willingness to hold cash, bonds, index linked securities and commodities when appropriate. It was shortlisted for Best UK Equity Growth Fund at the IC Fund Awards 2013.
Old Mutual UK Mid Cap Fund (GB00B1XG7999)
This is one of the best-performing UK equity funds from the UK Equity Income and UK All Companies fund sectors over the past decade. It aims to provide capital growth from investing primarily in a portfolio of medium sized UK companies. Medium sized companies are defined as those companies of FTSE Mid 250 Index. Typically at least 80 per cent of the invested assets will be held in companies meeting this definition.
Ecclesiastical UK Equity Growth (GB0008445982)
This is a multi-cap UK equity fund that has a bias to small- and mid-cap stocks, around 50 per cent of the fund. It aims to achieve long-term capital growth with a reasonable level of income. The fund's manager, Andrew Jackson, believes that small and mid caps are an important source of under-researched and under-valued opportunities, which fits his approach of looking for out-of-favour or under-valued investments, which can demonstrate a distinct and sustainable competitive advantage.
ConBrio Sanford DeLand UK Buffettology (GB00B3QQFJ66) NEW ENTRANT
The fund’s manager, Keith Ashworth Lord aims to replicate the investment philosophy of the world’s best investor, Warren Buffett, for the UK market. His investment strategy for the fund is based on identifying companies that provide a “holy trinity” of qualities. A company must have: enduring franchise with growth prospects and pricing power; high average and incremental returns on invested capital and equity; convert most if not all accounting earnings into free cash flow. He invests across the market spectrum from FTSE 100 companies to Alternative Investment Market companies. The portfolio is concentrated at around 25 stocks and he aims for a 10 year minimum holding period.
GLOBAL GROWTH (10 funds)
A good global growth fund can be a core holding for your portfolio. Global funds have the greatest potential for growth as they can find opportunities in all parts of the world.
Changes: We’ve introduced Witan, a great core holding for regular small investors.
Murray International (MYI)
This is an investment trust with a joint goal of achieving income and capital growth through investments predominantly in worldwide equities. The views of fund manager Bruce Stout have proved prophetic and have been a key driver of performance. The trust won Best Global Income Fund at the IC Fund Awards 2012 and again at the IC Fund Awards 2013, where we said it was “the clear winner on cost and performance”.
British Empire Securities & General (BTEM)
The trust’s manager – John Pennink since 2002 – has a clear focus to invest in undervalued assets on a global basis. He favours companies with little or no debt and relatively low volatility in their share price, as well as tangible fundamental value.
F&C Global Smaller Companies Investment Trust (FCS)
This is the only investment trust to specialise in smaller company investment on a global basis. It has a focus on identifying undervalued companies with strong growth potential and has an excellent performance record. It won the hotly contested Best Global Growth Fund category at the IC Fund Awards 2012 and was shortlisted in the same category at the IC Fund Awards 2013.
Scottish Mortgage Investment Trust (SMT)
This is a high conviction global portfolio targeted at growth stocks. The trust aims to maximise total return, whilst also generating real dividend growth, from a focused and actively managed global portfolio. The Company aims to achieve greater return that the FTSE All World Index (in sterling terms) over a 5 year rolling period. It also has very low costs.
Unicorn Mastertrust (GB0031218018)
This is an open-ended fund that invests for growth in a globally diversified portfolio of investment trusts – a good introduction to investing in the investment trust sector.
F&C Managed Portfolio Growth (FMPG)
This is an investment trust that invests for growth in a globally diversified portfolio of investment trusts – a good introduction to investing in the investment trust sector.
Lindsell Train Investment Trust (LTI)
This trust has a global mandate but runs a concentrated equity portfolio of between eight and 25 holdings. It also holds a 25 per cent stake in its parent fund management company, Lindsell Train. Fund manager Nick Train likes to invest in well-known consumer brands.
Law Debenture Corporation (LWDB)
This is an in independently run investment trust whose portfolio investments are managed by James Henderson of Henderson Global Investors. The trust aims to achieve long-term capital growth in real terms and steadily increasing income growth through globally and industrially diverse equities but has a large proportion invested in the UK. The trust is also a leading provider of independent fiduciary services. It was shortlisted for Best Global Growth Fund at the IC Fund Awards 2013.
Fundsmith Equity Fund (GB00B4LPDJ14) NEW ENTRANT
The fund is managed by Terry Smith and invests in a concentrated portfolio of between 20 and 30 companies on a global basis. The fund aims to be a long-term investor in its chosen stocks, which are high quality businesses whose advantages are difficult to replicate. It will not adopt short-term trading strategies. Its performance has been good since launch in November 2010.
Witan (WTAN) NEW ENTRANT
This global growth investment trust would make a good core portfolio holding. Back in the early 2000s, the trust was a perennial underachiever. But it has left its beleaguered reputation long behind. Since its manager, Andrew Bell, joined four years age, it has consistently beaten its benchmark. It’s a multi-manager global growth trust, so it gives investors exposure to a wide range of investments – many of which they would not be able to access as small retail investors themselves. It also has a very reasonable ongoing charge.
It’s an accessible option for regular savers with small amounts to invest, as it comes with an option for a regular savings scheme which can be started with £50 a month or a £250 lump sum. This option could also make it suitable for a parent or grandparent wishing to start a savings plan for their children or grandchildren.
NORTH AMERICA (2 funds)
We struggled to find funds that invest in large cap US equities and beat the index. However, there are a couple of good actively managed investment trusts in the US smaller companies space.
Changes: Not actually a change to the fund selection, just a name change - F&C US Smaller Companies has changed its name to Jupiter US Smaller Companies.
Jupiter US Smaller Companies (JUS)
Fundamental research and company analysis lies at the heart of this trust portfolio. The fund’s manager Robert Siddles seeks to exploit the entrepreneurial spirit of small and mid sized companies listed in the USA. With a highly defined and rigorously applied investment philosophy and process, he aims to focus on quality long term investments that have delivered a solid track record.
JP Morgan US Smaller Companies Investment Trust (JUSC)
The fund provides access to potentially faster-growing smaller US stocks. Investors benefit from a proven investment approach that seeks out well-run companies with a record of attractive and sustainable profit. The fund’s management team seek out companies that have a sustainable competitive advantage and are run by competent management teams who have a record of success and are good stewards of capital. They also focus on owning equity stakes in businesses that trade at a discount to their intrinsic value.
JAPAN (3 funds)
Japan is a major economy so a balanced portfolio would have some exposure.
No changes to the selection.
GLG Japan Core Alpha (GB00B0119933)
This is a sound choice for getting core Japan exposure into your portfolio. It boasts a sturdy and proven process and an accomplished management team. The fund’s manager Stephen Harker invests in large cap Japanese companies with a contrarian strategy and focus on value.
Baillie Gifford Japan Trust (BGFD)
This trust aims to pursue long-term capital growth principally through investment in medium to smaller sized Japanese companies which are believed to have above average prospects for growth. It has a good reputation and a good track record.
Baillie Gifford Shin Nippon (BGS)
The trust aims to achieve long-term capital growth principally through investment in small Japanese companies which are believed to have above average prospects for capital growth.
EUROPE (3 funds)
Europe has been a no go area for many investors because of its sovereign debt problems and the perception that it does not offer good returns. But there are still some good opportunities over on the continent. These are the three funds that we think are best positioned to benefit.
No changes to the selection.
Jupiter European Opportunities Trust (JEO)
This trust is a good way to access smaller companies. Fund manager Alexander Darwall describes himself as a “pan-European investor”. He takes a bottom-up approach to stock selection, focusing on the company rather than the country it is domiciled in or – for that matter – the market it is listed on.
Fidelity European Values (FEV)
The trust aims to achieve long-term capital growth from a concentrated portfolio of between 50 and 60 Continental European stock markets. The fund’s manager seeks companies based on their prospects for producing dividends and dividend growth as this indicates steady structural growth. The portfolio will generally have low turnover with a typical holding period of three to five years.
European Assets Trust (EAT)
This investment trust aims to achieve growth of capital through investment in a diversified portfolio of quoted small and medium-sized growth businesses in Europe, excluding the UK. A high distribution policy has been adopted and dividends have been paid mainly out of capital reserves. The manager picks high-quality businesses with high and sustainable returns on capital that are backed by strong balance sheets. He also looks for companies run by management with strong track records in capital allocation and which trade in industries with high barriers to entry.
ASIA (4 funds)
Asia is a region full of opportunity and the arguments for investing in Asian equities remain compelling – for example, the growth of middle class consumers in India and China, or the existence of well-established companies in Singapore and Korea with large exposure to the budding markets of Indonesia, Vietnam and Thailand. Many funds invest across Asia while excluding investment in Japan.
No changes to the selection.
Aberdeen Asian Smaller Companies Investment Trust (AAS)
The trust aims to maximise total return to shareholders over the long term from a portfolio of smaller quoted companies in the economies of Asia and Australasia, excluding Japan. It has a successful fund manager in Hugh Young, good performance and a proven investment process.
First State Asia Pacific Leaders (GB0033874214)
The fund aims to achieve long-term capital growth by investing in large and mid capitalisation 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.
Edinburgh Dragon Trust (EFM)
This trust aims for long-term capital growth through investments in the Far East excluding Japan & Australasia. It has a strong performance record and does not let market indices dictate how much should be held in a particular market or sector.
Pacific Assets Trust (PAC)
The trust aims to achieve long-term capital growth through Asian Pacific and Indian subcontinent (ex Japan, Australia and New Zealand) equities. Since top Asian equity managers First State have run Pacific Assets Trust, there has been a marked turnaround in performance resulting in some of the best returns in its sector.
EMERGING MARKETS (7 funds)
If you look away from the UK and Europe, the world has plenty of thriving, fast growing markets. However, these emerging market sand high risk, being traditionally the hardest hit when there is a wider market sell-off. So your first move should be into a highly diversified global emerging markets fund.
Changes: We’ve dropped Advance Developing Markets Fund from the selection because it hadn’t beaten its benchmark. We decided to add an investment trust that invests in India.
Templeton Emerging Markets (TEM)
This investment trust is managed by emerging markets veteran Dr Mark Mobius, one of the pioneers of emerging markets investing, and has posted stellar long term performance for investors. The trust seek long-term capital appreciation through investment in companies operating in emerging markets or stocks listed in stock markets of such countries. It was shortlisted for Best Global Emerging Markets Fund in the IC Fund Awards 2013.
Utilico Emerging Markets (UEM)
The trust aims for a long-term total return by investing in infrastructure, utilities and related sectors, mainly in emerging markets. It tries to reduce risk by investing in companies and sectors of essential services or monopolies such as utilities, transportation infrastructure, communications and companies with a unique product or market position.
Lazard Emerging Markets Fund (GB00B24F1P65)
The fund is smaller and more nimble than giant funds such as First State Global Emerging Markets Leaders. It could be considered a safe pair of hands in a volatile, high-risk/high-reward sector. The investment team assess stocks against their global peers and look for companies with both inexpensive valuations and high levels of financial productivity. The fund is likely to focus on, but not be limited to, Latin America, the Pacific Basin and Europe.
JP Morgan Global Emerging Markets Income (JEMI)
This is an investment trust that offers access to dividend-paying stocks in the MSCI Emerging Markets index and has a good track record.
BlackRock Emerging Europe (BEEP)
This trust aims to achieve long-term capital growth by investing in companies that do business primarily in eastern Europe, Russia, other Commonwealth of Independent States countries and Turkey.
JPMorgan Chinese Investment Trust (JMC)
This trust has a good pedigree of investing in Greater China companies.
New India Investment Trust (NII) NEW ENTRANT
The trust aims to achieve long-term capital appreciation by investing in companies which are incorporated in India or which derive significant revenue or profit from India, with dividend yield from the company being of secondary importance. The trust is run by Aberdeen Asset Management’s emerging markets team, led by Hugh Young, one of the most experienced managers in this area. New India’s portfolio has a quality bias which should mitigate Indian market risks. It has good performance and reasonable fees – although it incorporates a performance fee, total fees are capped at 1.75 per cent.
FRONTIER MARKETS (2 funds)
Funds investing in frontier markets are ultra high-risk investments and not for the faint-hearted. However, they could reap big rewards for investors with long timescales.
No changes to the selection.
BlackRock Frontiers Investment Trust (BRFI)
The trust invests in a representative number of the MSCI Frontiers Index markets, meaning it has exposure to a wide range of frontier markets such as Nigeria, Iraq and Vietnam. The manager also looks beyond the MSCI Frontier Markets Index and includes shares from countries such as Saudi Arabia which has a well-regulated market. Performance has been impressive.
Fidelity Emerging Europe, Middle East and Africa (GB00B29TR993)
This fund takes a broader approach than specialist Africa funds. It aims to generate long-term capital growth by investing in the less developed countries of central, eastern and southern Europe, the Middle East and Africa.
COMMODITY FUNDS (3 funds)
Commodities are a very high-risk and volatile investment area, but commodity funds can help to lower that risk through a diversified portfolio of stocks, meaning there is the potential for big returns and asset diversification for your portfolio. However, investors should only have a small portion of their portfolio dedicated to this area.
Changes: We have trimmed this list by dropping Sarasin Agrisar which had suffered from poor performance.
City Natural Resources High Yield Trust (CYN)
This trust aims for capital growth and income from mining and resource equities and bonds issues by industrial and extractive companies. With its focus on gold miners and low costs it won Best Commodity Fund at the IC Fund Awards 2012.
BlackRock World Mining Trust (BRWM)
This trust aims to maximise total returns to shareholders through a world-wide portfolio of mining and metal securities. Up to 10 per cent of the assets may be invested in physical metals and up to 10 per cent of the assets may be invested in unquoted investments.
Investec Global Gold Fund (GB00B749TM64)
The Fund aims to achieve long term capital growth primarily through investment in equities issued by companies around the globe involved in gold mining and in derivatives the underlying assets of which are equities issued by companies around the globe involved in gold mining. The fund may also invest up to one-third in companies around the globe that are involved in mining for other precious metals and minerals. This fund won Best Commodity Fund at the IC Fund Awards 2013.
PROPERTY (7 funds)
Property is a good diversifier away from equities. But if you want real diversification then you need to invest in funds that invest directly in bricks and mortar.
Changes: We’ve added a residential property fund option.
M&G Property Portfolio (GB00B89MXM58)
This is an open-ended property fund that invests in bricks and mortar rather than property shares and so provides better diversification when held alongside equities.
F&C Commercial Property (FCPT)
The trust aims to provide an attractive level of income with the potential for capital and income growth from a diversified UK commercial property portfolio. Its modest expenses, good overall performance and a good yield history made it the winner of Best Property Fund at the IC Fund Awards 2013.
UK Commercial Property (UKCM)
This trust aims to provide shareholders with an attractive dividend yield and the potential for capital and income growth through investment in a diversified portfolio of UK commercial property. It won Best Property Fund at the IC Fund Awards 2012 for its high income, reasonable costs and good fund manager commentary.
Picton Property Income (PCTN)
This trust aims to achieve attractive income levels and capital growth potential through investment in property in Isle of Man, Channel Islands and UK. It is at the riskier end of the property fund spectrum.
TR Property (TRY)
This is a UK-based investment company, listed on the FTSE 250 index, which invests in a diversified portfolio of Pan European equities and UK direct property on behalf of its shareholders. It is a reliable income payer.
TM Hearthstone UK Residential Fund (GB00B7L7F472) NEW ENTRANT
We think this fund is a good option for an investor who wants to build up a deposit for a UK house purchase. It could also be used by parents and grandparents who want to help children and grandchildren onto the property ladder.
The fund invests in private rented sector housing across the mainland UK regions and aims to capture UK house price growth plus provide an element of income return. The property investment manager, Hearthstone Asset Management, uses quantitative asset allocation methods and qualitative regional stock selection to build a portfolio of assets reflecting the distribution of UK mainland housing stock. These properties are let under assured shorthold tenancy agreements and corporate lets. Investment returns comprise capital growth and rental income.
First State Global Property Securities (GB00B1F76L55)
This fund is invested in a global portfolio of property shares rather than bricks and mortar. It was shortlisted for Best Property Fund at our Fund Awards 2012.
SPECIALIST/ALTERNATIVE (12 funds)
You might want to invest thematically or into areas that offer your portfolio diversification. Here are some funds that can do that.
Changes: We’ve dropped International Biotechnology Trust as it hadn’t performed well. In its place, we’ve introduced rival Biotech Growth Trust. During the course of the year, BlackRock New Energy was wound up and its capital returned to investors. RCM Technology Trust has changed its name to Allianz Technology Trust.
Worldwide Healthcare (WWH)
This trust seeks superior healthcare investment opportunities on a worldwide basis by investing in pharmaceutical, biotechnology and related companies with a focus on capital growth, rather than income.
Biotech Growth Trust (BIOG) NEW ENTRANT
This trust replaces International Biotechnology Trust, which had underperformed its benchmark and changed managers. Biotech Growth Trust seeks capital appreciation through investment in the worldwide biotechnology industry. Performance is measured against its benchmark index, the NASDAQ Biotechnology Index (sterling adjusted).
The portfolio is split into three key areas:
1) Major biotech companies, which the manager believes offer compelling value based on earnings growth.
2) Emerging biotech companies with newly launched products or ones in late stage development. The emphasis is on companies that are either M&A candidates or are about to become profitable.
3) Early stage emerging companies with novel therapeutic candidates.
Jupiter Financial Opportunities (GB0004790191)
The fund aims to seek out growth opportunities in financial services companies and to a lesser extent property related companies on a global basis. The Fund’s investment in UK companies will be equal to or greater than the UK weighting in the MSCI All Country World Financials Index or any successor benchmark index. Investment in other countries is, however, unconstrained.
Polar Capital Technology Trust (PCT)
The trust aims to maximise long-term capital growth by investing in a diversified portfolio of technology companies around the world. It has historically had an emphasis on large cap technology companies.
Allianz Technology Trust (ATT)
The company aims to achieve long-term capital growth through global technology companies. It has historically had an emphasis on mid and small cap companies mainly based in the US.
First State Global Listed Infrastructure (GB00B24HJC53)
The fund invests in a diversified portfolio of listed infrastructure and infrastructure related securities from around the world. It is a solid defensive play on infrastructure.
HICL Infrastructure Company (HICL)
The fund aims to invest in infrastructure projects which are predominantly in their operational phase and yielding steady returns. It has low costs, a high yield and good record of return. Predominantly invested in the UK, it has started to make a few investments overseas.
BH Macro Investment Trust (BHMG)
This trust makes very different returns to equities by investing all of its assets into the Brevan Howard Master Fund, one of the largest hedge funds globally. This hedge fund aims to generate consistent long-term appreciation through active leveraged trading and investment on a global basis.
Standard Life European Private Equity (SEP)
Private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange. The investment trust aims to achieve long-term capital gains through holding a diversified portfolio of private equity funds investing predominantly in Europe.
Pantheon International Participations (PIN)
The trust aims to maximise capital growth by investing in a globally diversified portfolio of private equity funds and, occasionally directly in private companies. The fund invests with leading private equity managers in the US, Europe and Asia, seeking to reduce investment risk through diversification of the underlying portfolio by geography, manager, maturity, investment stage and sector. It has low charges too.
Graphite Enterprise Trust (GPE)
The trust aims to provide long-term capital growth through investment in unquoted companies both directly and through specialist funds. It takes a cautious, conservative approach to investing. The fund focuses on buy-outs that are considered to be lower risk than venture capital and takes a conservative approach to managing its balance sheet.
Catco Reinsurance Opportunities (BMG1961Q1006)
This is an esoteric, insurance-based investment trust, offering returns that are uncorrelated to other markets, particularly equities. The trust makes its money by providing a backstop to the insurance industry. In exchange for a fee, or premium as it is called in industry terminology, CatCo promises insurers it will make up the difference if claims relating to certain types of natural catastrophe exceed a given level in a year.
ETHICAL/ENVIRONMENTAL (4 funds)
It is difficult to find ethical funds that outperform their non-ethical rivals. However, more and more investors are interested in aligning their ethics and social conscience with their investments, here are a few recommendations.
Changes: We have dropped New Earth Solutions Recycling Facilities Inv Sub Fund as it is too expensive and hasn't met performance expectations. However, we have introduced the Battle Against Cancer Investment Trust, which might interest some investors with an ethical bent.
Impax Environmental Markets Trust (IEM)
This trust focuses on cleaner and more efficient delivery of energy, water and waste. It invests globally, mainly in listed companies involved with technology-based systems, products or services in environmental markets.
Royal London Ethical Bond (GB00B4WSJK27)
The fund invests predominantly in investment-grade UK corporate bonds that meet predefined ethical criteria. The policy of the fund considers all of the following ethical issues: alcohol, armaments, gambling, pornography, tobacco, human rights, animal testing and the environment. While most ethical funds struggle to beat their non-ethical peers, this fund’s performance record was good enough to win Best Bond Fund at the IC Fund Awards 2013, beating its non-ethical peers.
F&C Stewardship Growth (GB0030833981)
Having launched its first UK retail ethical fund, the F&C Stewardship Growth Fund, in 1984, F&C has a 25 year track record in running ethically-screened funds. The Fund provides an investment medium for people who do not regard financial gain as the sole criterion for investment but look to wider issues. Investment is concentrated in UK companies whose products and operations are considered to be of long-term benefit to the community both at home and abroad, with the aim of achieving long-term capital growth and increasing income, with the emphasis on capital growth.
Battle Against Cancer Investment Trust (BACT) NEW ENTRANT
Taking a ‘fund of funds’ approach to global growth investing, this investment trust provides access to funds that private investors would be mostly unable to invest in directly. At the same time it avoids the high fees normally associated with a fund of funds approach. The cost to investors is 1 per cent of the trust’s net asset value which is donated annually to cancer charities. The underlying funds have all agreed to waive their own fees to support the initiative, so investors benefit from the gross performance. That alone is attractive and significantly improves the benefits of compounding returns over time. But additionally BACT generates revenues for cancer research, charitable work and invested in the development of new drugs. Plus, no underlying fund can invest in tobacco stocks so it may appeal to investors who have ethical objections to those stocks.
