This is the full annual review of the IC’s Top 100 Funds list, which aims to make life easier for DIY investors.
The difficulty in choosing an actively managed fund is the sheer number available. There are 3,582 UK authorised investment funds and 399 investment trusts to select from, making it difficult to know where to start. This list aims to be that starting point for your portfolio selection.
This year we have canvassed the views of ten experts in order to improve the list. As a result 20 funds have been removed from the list and 20 have been added. This represents a bigger overhaul than we envisaged but we do think it is an improvement.
About the Top 100 Funds
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.
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 self-directed investors should be looking at in building a portfolio for the long term. Some of the Top 100 Funds should make great core holdings for your portfolio. Others are good satellites that you should only use for a small portion of your investments.
Analysis of actively managed funds requires subjective judgments, and it is no doubt worth challenging the recommendations that are made, or at least factoring them into your own assessment of a fund.
Unlike other recommended active fund lists, we don't limit our choices to open-ended funds, such as unit trusts and oeics. However, 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 the premium has reduced or, ideally, they are trading 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.
What the list aims to do:
1. Make things easier for investors by narrowing down the universe of open-ended funds and investment trusts.
2. Offer options – open ended and investment trust - for every asset class.
3. Find funds and managers that are offering strategies that DIY investors who are confident holding direct shares alongside funds would struggle to replicate themselves.
4. Find managers who have strong views and high conviction methodologies and who are not constrained by benchmarks.
5. Find low cost options. No expensive funds unless there is a rock solid investment case.
6. Find funds that you can buy and hold for the long term. Not short term trades or funds that we think will do well this year.
How we created the list
This is the fifth year that we have run the list. It started in 2011 as a compilation of fund ‘buy’ tips that we had run in Investors Chronicle.
Using data from Morningstar each year since we have reviewed performance of all funds in the list vs their benchmarks – the index which the fund aims to beat in performance terms - plus their fund or investment trust sector. We have used this data as a basis for making changes to the list.
We also take into account the body of work that the Investors Chronicle’s funds team has produced over the past year. This includes the weekly fund tips and all the thematic articles on investment funds. Some of the new ideas for funds come from this.
This year to improve and aid the process we have asked a panel of ten fund and investment trust experts to help us review the list. Each expert is highly respected as a fund or investment trust selector in the industry. So the combined brain power of all these experts makes a powerful addition to the list’s authority.
The 10 experts:
■ Alan Brierley, director, Investment Companies Team, Canaccord Genuity
■ Kieran Drake, research analyst, Winterflood Investment Trusts
■ Gavin Haynes, managing director, Whitechurch Securities
■ Adrian Lowcock, head of investing, AXA Wealth
■ Darius McDermott, managing director, Chelsea Financial Services
■ Rob Pemberton, investment director, HFM Columbus
■ Stephen Peters, investment analyst, Charles Stanley
■ Ben Seager-Scott, director, Investment Strategy, Tilney Bestinvest
■ Charles Tan, investment companies analyst, Cantor Fitzgerald
■ Steve Wilson, director, Alan Steel Asset Management
We asked each expert:
■ Which are the ten funds/investment trusts you would definitely keep in this list?
■ Which ten funds/investment trusts would you remove from this list?
■ Which ten funds/investment trusts would you introduce to the list?
Is the list comprehensive? Are there any fund or investment trust sectors that we have missed and investors should be considering in a diversified portfolio?
The ten funds to keep question was very revealing and many of the experts were in agreement. Where two or more experts were in agreement over a top ten holding, we viewed this as enough of an endorsement to put the fund in the list. After all, we had only given them the option of keeping ten so any overlap in choice was significant.
Likewise, when two or more experts picked the same fund among their ten to remove from the list we went with this decision. There weren’t as many agreements on these issues as the experts said that they found it more difficult to find funds to remove than ones to keep.
There were some funds that received one top ten ‘keep’ or one top ten ‘drop’ recommendation. These needed more scrutiny and in some cases we have overruled the experts. But in most instances, we have gone with the recommendation.
There were also a few funds on which the experts disagreed.
The list of sectors and funds that we should consider adding to the list proved not so much a useful exercise as so many suggestions were put forward and we didn’t find much agreement between the experts. However, a few received two nominations and were therefore considered for the selection.
In some of these markets you may prefer a passive fund that simply aims to replicate performance of a benchmark index. This could be an open-ended index tracker fund or an exchange traded fund (ETF) – a type of passive fund traded on the London Stock Exchange. You may wish to consult the IC’s Top 50 ETFs list for ideas.
Risk warning: We can offer no guarantees. In the words of the Financial Services 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 or not.
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