In the list below, I have highlighted the funds that received a top 10 'keep' or 'add' recommendations from our panel of experts. Each star represents a 'keep' or 'add' recommendation.
Note that we have attempted to highlight the cheapest version of the fund and have also usually gone for the accumulation class. Depending on your platform or broker, you may want to buy another version of the fund or select the income class.
BONDS (9 funds)
Bonds, once a safe port in a storm, are now an unpredictable asset class with record low yields. Our experts were quite concerned about the bonds exposure and so we've made some changes to help cope with the new landscape for this asset class.
Changes to the selection:
M&G Optimal Income (GB00B7FM9R94) was one of the funds that the experts disagreed on. Three wanted to keep it and two to drop it. But we were more convinced by the arguments to drop it. The fund has become very large and performance has come off the boil recently. Gavin Haynes says: "While I do rate the M&G fixed interest team highly, I am a bit concerned that this fund has become a victim of its own success having grown to over £20 billion in size. The size of the fund can make it more difficult to take advantage of opportunities in less liquid areas of bond markets."
M&G Global Government Bond Fund (GB00B7576C49) has also been dropped. This is based on the fund's manager Mike Riddell leaving combined with poor prospects for the asset class. Government bonds have had a good run over the past few years and experts believe they don't offer that much value. There is a risk that the fund might make negative returns at this point in the cycle due to its focus on government bonds. Darius McDermott says: "Another recent change of manager and we really don't like this asset class at the moment."
NEW ENTRANT: PFS Twenty Four Dynamic Bond I Acc (GB00B5VRV677) *
The fund aims to provide an attractive level of income along with the opportunity for capital growth, by investing in a broad range of bonds and fixed income assets, including investment grade bonds, high yield bonds, government bonds and asset-backed securities. It has a highly flexible strategy, including the use of derivatives, enabling it to take advantage of prevailing market conditions as they change over time and therefore perform in both rising and declining rate environments throughout the economic cycle.
Ben Seager-Scott says: "TwentyFour is a relatively new investment boutique but the managers have significant prior experience and are highly respected in the industry. This strategic bond fund invests across Europe (including the UK) and has full flexibility to invest across the credit spectrum in both corporate and government bonds as well as asset-backed securities and can also use derivatives to control interest rate and credit risk. Currency effects are mitigated by hedging exposure back to sterling. Although I wouldn't consider this a core exposure, it could be a good supplement to other fixed income exposures given its slightly different focus – the team are specialists in this area and the mandate is nimble, allowing them to very effectively exploit investment opportunities."
The fund invests in higher-yielding assets including high-yield bonds, investment grade bonds, government bonds, preference shares and other bonds. It may also invest in equities. Returns from the fund have been slightly more volatile than other strategic bond funds, reflecting its higher risk profile, but have been impressive.
The fund aims for a high income and capital growth by seeking out the best fixed-income opportunities globally, and investing in higher yielding assets. Under manager Ariel Bezalel it has delivered positive returns every year since launch and has paid consistent dividends. Mr Bezalel also uses derivatives for efficient management of the portfolio. Gavin Haynes says: "In what is a challenging environment for fixed interest investors, this is a 'go anywhere' bond fund meaning that it will invest across the fixed interest spectrum and can include high yield bonds, investment grade bonds, government bonds, preference share and convertible bonds. Ariel Bezalel has built up a strong track record." Rob Pemberton says: "In what could be a challenging time for the asset class in the coming years, investors need a fund that is benchmark unconstrained and where the manager is brave enough to take decisive action when he sees fit. Ariel Bezalel, invests with real flair and conviction and has proved to be capable of making bold but ultimately successful calls in the past."
The fund aims to provide returns that are consistent with or exceed inflation, as measured by the Consumer Prices Index (CPI) over a rolling three- to five-year period. It invests in a range of fixed interest securities that should perform well when inflation is high or rising. Darius McDermott says: "It has a shorter duration and has held up well in recent bond market sell-offs. No one is talking about the threat of inflation yet, but it is lurking in the background so some protection is a good idea." Adrian Lowcock says: "The fund's manager Ben Lord creates a synthetic portfolio using corporate bonds and gilts combined with derivatives to replicate the behavour of corporate bonds. The fund has successfully protected investors against inflation combining Mr Lords stock selection skills with Jim Leaviss macro economic views." Fund manager Ben Lord 'hated 2014' - the fund suffered that year as a result of rapidly falling inflation rates and a short strategy which took its toll on performance - a total return of minus 1.2 per cent for 2014.
Don't expect this fund to shooot the lights out but do expect downside protection and a shelter from volatility. The fund aims to generate positive absolute returns for investors over a rolling 3 year period irrespective of market conditions. It aims to beat the 3 month GBP Libor by 2 to 3 per cent a year net of fees over a rolling 36 month period. It will seek to do this by investing in global debt instruments in any currency, ranging from AAA Government Bonds through to high yield and emerging market bonds. The fund may also invest in all types of fixed and floating rate fixed income securities.
This trust focuses on high yielding fixed income from smaller and mid-sized companies and cut its management fee this year. The trust tends to buy securities higher up the repayment priority scale, increasing the likelihood that it will be paid back. It also has some equity exposure, investing in renewable energy and real estate investment trusts. Charles Tan says: "It's a differentiated way of getting a high yield from a diversified portfolio of notes, preference shares and bonds. It's a good diversifier for your portfolio and has posted steady NAV performance over time."
This fund aims to provide regular dividends, while growing the capital value of its portfolio by investing in floating rate senior secured loans issued by North American and European Union corporations, partnerships and other business issuers. It has an impressive team behind it and a highly diversified portfolio. Two experts disagreed on this fund. Alan Brierley sees more challenging times ahead for the trust with reservations about the fund's ability to deliver yield and capital preservation. However, for investors who appreciate the risks we think it is one to keep as an option for diversifying your income portfolio. Ben Seager-Scott says: "The floating rate nature of the fund makes it relatively insensitive to interest rate changes making it a useful diversifier when combined with traditional fixed income holdings which are generally expected to suffer as interest rates rise."
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. HDIV's ability to invest in secured loans could be useful if interest rates start to rise. In the past the trust has had as much as 80 per cent of the portfolio in loans.
This is a lower risk emerging markets bond fund that hedges the currency risk to sterling. It asims to provide an attractive level of income and long-term capital return. The investment policy is to invest primarily in fixed interest securities which are issued by corporations with their registered office in, and/or government related bodies domiciled in an emerging market country. Darius McDermott picked it as one to keep. He says: "This is a steady fund in what can be a volatile sector. The team has an extensive network of contacts in governments and central banks as well as the IMF."
WEALTH PRESERVATION (8 funds)
A rise in stock markets over the past six years means equities look expensive and some investors fear a correction. Many fixed-interest assets also seem overpriced, making this area less attractive for those looking for a lower-risk alternative to equities.
One way to lessen volatility is to choose a defensive manager with a long-term focus on quality stocks whom you trust to cushion the blow if markets drop dramatically.
Another way to protect your capital and maintain steady returns is to use an absolute-return fund. Rather than trying to beat an index these funds attempt to deliver a consistent positive return, meaning they will not outperform in a bull market but could protect you from shocks when things turn sour.
This global investment trust chaired by Lord Rothschild takes a cautious wealth preservation approach and is highly diversified. It was impacted by its defensive approach over the last few years, resulting in underperformance against the index in 2012 and 2013. However, following a management shake-up and successful stock picking and currency strategies the fund appears to have returned to growth. Stephen Peters recommends it as "differentiated and unique".
The trust aims for above average returns with below average volatility over the cycle, and over longer periods it has done this, although the management team at Troy have only run it since 2009. The trust also aims to avoid permanent capital loss. Its manager Sebastian Lyon explains that Personal Assets Trust "is a wealth preservation vehicle and not about maximising upside". Because of its defensive bias the trust tends to underperform in rising markets.
The trust aims to achieve capital and income return of twice the Bank of England base rate through internationally listed securities and bonds. Charles Tan says: "It's defensively positioned and has a great long term track record. The managers stick to their guns. It underperforms in a strong bull market (like we've had in recent years), but should shine in a correction."
The trust aims to achieve absolute returns through active asset allocation across equities, bonds and commodities. It sits in the AIC UK All Companies sector but investments are made in quoted closed ended trusts and other collective investment vehicles that invest in other countries around the world. It's very defensively positioned and aims to preserve your wealth. Returns have been positive over the long run but very small as it is a cautious trust. Think of it as a safe haven.
The fund aims to achieve a combination of income and capital growth over the medium to long term. It invests primarily in corporate and government debt securities globally (which may be unrated or sub-investment grade) and equities. It makes an income distribution fund at the month end and has performed very consistently. Steve Wilson recommended it as one of his top picks to keep. It would make a good lower risk core holding for a portfolio.
With three top ten 'keep' recommendations, this fund is one to consider as a good defensive core holding. Rob Pemberton says: "The Fund is included in the IA Targeted Absolute Return sector but is essentially a conservatively managed multi-asset fund with an excellent performance record over many years of both preserving and growing capital. It is an ideal 'one stop shop' for the more cautious investor. It has significant equity exposure and as such there is potential for considerable loss of capital but thus far though this has been avoided by the experienced and canny manager, industry veteran Iain Stewart."
Adrian Lowcock says: "Mr Stewart's first priority is capital protection and he then looks to deliver returns of 4 per cent above cash per annum over the longer term. He runs an unconstrained and flexible approach which initially uses Newton's thematic research to identify opportunities and to position the portfolio appropriately."
Gavin Haynes says: "Mr Stewart is a proven and effective asset allocator who is supported by strong resources and has demonstrated good use of derivative strategies to enhance returns and control risk."
This is a multi-strategy absolute-return fund that seeks to generate a positive return of 5 per cent above cash over the medium term, irrespective of market conditions. At the core of its success is the sheer scale of the brainpower devising its many strategies. Two of our experts recommended it as a new entry to the Top 100 Funds: Gavin Haynes and Ben Seager-Scott. The fund's managers aim to exploit market inefficiencies through active allocation to a diverse range of market positions. The fund uses a combination of traditional assets such as equities and bonds alongside advanced derivative techniques. It can take long and short positions in markets, securities and groups of securities through derivative contracts.
The fund aims to provide a positive return over the long term whether markets go up or down by playing a long/short strategy UK company shares. Derivatives will be used to help the fund achieve its objective. The fund aims to typically deliver absolute (more than zero) returns in each year and has mostly achieved this.
The net exposure is kept low and that's how risk and volatility is kept down. The fund runs a number of strategies and it's well diversified.
EQUITY INCOME (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.
Changes to the selection:
Two experts recommended that we drop Acorn Income Fund (AIF). Kieran Drake says: "Despite the continuity offered by the appointment of Simon Moon and Fraser Mackersie following the sad passing of John McClure in 2014, they have failed to replicate the strong performance seen under John's stewardship. Given the number of small cap funds on the list and their strength it would seem reasonable to remove Acorn Income after the change in management and a year of underperformance." Stephen Peters says: "There are better income opportunities elsewhere."
We've also dropped Murray Income Trust (MUT). Stephen Peters says: "Given the quality of other funds in sector, MUT doesn't stack up well." We agreed that you don't need this one as well if you already have City of London, Finsbury Growth & Income and Perpetual Income & Growth. MUT has higher charges than these trusts and its performance hasn't been as good.
One year after launch in June 2014, this fund's star manager Neil Woodford was crowned the best performer in the UK equity income sector, with a fund return of nearly 20 per cent in the year to June 2015. Investors have piled into the fund, making it reach the £6 billion mark and leading some experts to question the effect of this size on performance. However, five experts picked this as one to keep and we're not arguing with that.
Rob Pemberton says: "This is a rather unusual UK equity income fund in two respects. Firstly, the portfolio focuses on 'recovery' stocks alongside the 'strong balance sheet/consistent growth' companies you normally find in the funds in this sector. Secondly, the fund uses a 'covered call' overlay which in effect swaps some future potential capital growth for a defined amount of income in order to enhance the dividend yield of the fund, targeted to be 7%. The covered call strategy does mean that the fund may lag the peer group when the market is strong but it provides a cushion in falling markets and such a high yield is a very hard to find elsewhere in the current 'income starved' world."
This fund specialises in the mid and small-cap income areas of the UK market because its managers believe that these parts of the market are overlooked by both brokers and fellow small and mid-cap managers. Targeting smaller companies for equity income is also useful for diversification as many UK equity income funds have similar top 10 holdings and sector biases. This year the fund was ranked first in Sanlam's White List of equity income funds, a highly respected study of funds that produce superior total returns over five years. We first tipped it as a 'buy' in the IC in May 2013.
This fund offers something a bit different in the UK Equity income space in seeking income from companies across the market capitalisation spectrum. Despite being in the UK Equity Income investment trust sector, it has no benchmark. Fund manager Gervais Williams has a great reputation, particularly for investing in the small-cap arena.
We're over-ruling Alan Brierley here, who thought it was one to drop, purely from timing issues – otherwise, he thinks it's a great fund.
City of London has quite rightly established itself as a core holding for investors looking for long-term growth in income and capital from UK equities. The dividend has now been increased for 48 consecutive years, it has very low charges and a lower risk investment style. Gavin Haynes says: "Based on the conservative investment philosophy and strong manager track record I believe this to be an excellent UK equity income trust."
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. Charles Tan says: "James Henderson. Brilliant manager. Great long term track record. Not much more to say, really."
The fund's manager, Carl Stick, says the UK equity income sector is now riddled with "compromises" and picking a path through shares that are cheap for a reason and those that are expensive is getting harder. That might explain why the shares exciting him most today come from the US, rather than the UK.
Gavin Haynes says: "This is a traditional equity income fund that invests in a portfolio of around 50 – 70 companies that provide above average and increasing income. Manager Carl Stick invests in companies where the management is committed to increasing dividends without penalising capital growth. The fund has a strong record of rising annual distributions and some of the best risk-adjusted return numbers in the sector and we believe that it is a good choice for diversifying an equity income portfolio alongside core blue-chip focused funds." Steve Wilson also recommended it as an addition to the selection.
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. Stephen Peters calls it a "best in class manager and vehicle".
OVERSEAS EQUITY INCOME (8 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 to the selection:
Three experts recommended that we drop M&G Global Dividend Fund I Acc
Fund manager Stuart Rhodes made a public apology for poor performance in 2014.
Lazard Global Equity Income has also gone because performance hasn't been great. Threadneedle Global Equity Income is also out. Steve Wilson says: "Threadneedle as a company seem to have issues internally with many of the big name fund managers having left recently." Newton Asian Income Fund has also been dropped due to its long-term manager of Jason Pidcock leaving Newton.
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.
This fund invests in the Far East in Asian (excluding Japan) and Australasian companies and gives you the potential for a regular income and some growth. It's relatively conservatively managed and has a good team behind it. It has tended to fall less than its peers.
The trust provides exposure to Asian domestic growth and its manager, Matthew Dobbs, who has managed the trust since launch, focuses on quality companies with strong balance sheets, sustainable earnings, cash flows and corporate governance - bought at attractive valuations. It has a strong track record and a decent yield. Ben Seager-Scott says: "Mr Dobbs is a very capable manager who is based in London but makes use of a sizeable analyst team based locally in the region. This set-up means the manager gets first-rate on-the-ground research from the locally-based analysts but can also put that research into a global context given his access to the London-based global analyst teams."
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. Charles Tan says: "It's had a poor run of late, but the Aberdeen strategy is one that has proven time and again to reward long term investors. Asia has been weak, and may get weaker with all the global macro issues right now, but I wouldn't write this one off just yet."
Nine open-ended funds and two investment trusts give actively managed exposure to North American income. None of them has delivered outstanding returns but this is the best option among them. Although the experts were divided on this fund, with Gavin Haynes and Adrian Lowcock in the 'keep' camp and Darius McDermott and Rob Pemberton in the 'drop' camp, we felt on balance it is worth keeping. Adrian Lowcock says: "Manager, Clare Hart, takes a value approach to investing. She has a clear investment discipline looking for companies with at least 2 per cent dividend yield but is more concerned with the ability to grow the income." Rob Pemberton points out: "In line with several other leading regional Equity Income funds, this fund has produced outstanding returns relative to the peer group and the benchmark index in occasional years but disappointing returns in others. This fund has underperformed the S&P500 index since launch in 2008." Nevertheless over the periods we looked at it had delivered some outperformance vs the Russell 1000 Value TR Index. Alternatively, you may want to use a tracker fund such as HSBC American or exchange traded fund to get exposure to North American income and we offer several options in our Top 50 ETFs.
This fund 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. It has a good yield and although the experts were divided on whether to keep or drop this one from the selection, we decided to keep it for its income diversification benefits. Charles Tan worried that the Canadian oil sands don't look like reliable income producers with the oil price looking low to the foreseeable future. However, at the time of review, the trust was underweight in the energy sector.
The fund is better diversified then some global equity income funds, using its full global remit to exploit income opportunities. It has delivered strong performance, leading three experts to pick it as one to keep. Gavin Haynes: "This fund was launched in 2010 and has been managed by Jacob De Tusch-Lec since inception and he has produced some strong numbers since launch. The fund has produced rising dividend income combined with capital growth from investing in a portfolio of global equities. The manager is not restricted in his choice of investments by size, industry or region and backs his own convictions." Darius McDermott says: "This fund just goes from strength to strength and is now the go-to fund in the sector in our view".
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 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 (9 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 to the selection:
Standard Life UK Smaller Companies Trust (SLS) has been dropped. Ben Seager-Scott says: "This is a manager where conviction is no longer as strong as it used to be. Although the investment trust is a lot smaller than the open-ended fund, the investment strategy is very similar, and it has proven difficult for both versions of the fund to add value, potentially due to the sheer size of the open-ended fund, with some negative spillover for the smaller investment trust. Eitherway, at this stage I have higher conviction in other small cap managers. Darius McDermott says: "It has a decent long term track record but has come off the boil in the last four to five years in the same way as the open-ended version."
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: intellectual property in the form of patents, branding and copyrights; a strong distribution network - as these are valuable and difficult to replicate; and high contracted recurring revenue.
Ben Seager-Scott says: "The managers have a highly successful strategy of seeking out primarily UK companies that have a strong "economic advantage" from which sustainable growth can be achieved. They have a great track record with a style that is distinct from many of their peers, with proven judgement that is difficult for others to replicate." Darius McDermott says: "For investors wanting high-conviction, multi-cap exposure to the UK stock market, this fund ranks among the best."
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.
Charles Tan objected to illiquid assets being kept in an open-ended fund. But three other experts picked this as one to keep and performance has been impressive with a fantastic annualised return record.
Two experts recommended that we include this fund in the selection. Gavin Haynes explains: "Aberforth is a specialist Edinburgh based investment management firm that solely focuses upon investing in UK smaller company shares. They operate a team based approach and have built up a strong track record stretching back for over fifteen years, as stock-pickers with a clearly defined investment philosophy. The team's investing method is to look for undervalued areas of the UK smaller company stockmarket that have been overlooked by the market and have strong recovery potential." When investors think of smaller companies, they often think of growth potential. However, Stephen Peters says: "This is the only value based small cap fund."
The trust aims to 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.
The trust has been managed by Neil Hermon since 2002. It invests in smaller companies quoted in the UK. Kieran Drake says: "Henderson Smaller Companies has a strong and consistent record of outperforming its benchmark under the stock-picking approach of Neil Hermon, which focuses on quality at the right price. The NAV has outperformed the benchmark in 10 out of the 14 calendar years under his stewardship. The fund has tended to have a higher weighting to the mid-cap segment than its peers, but, in addition to performing strongly against this group of funds, it has also outperformed funds solely focused on mid-cap stocks over the last five years."
Nick Train, the manager of this consistently outperforming UK equity income investment trust, runs a concentrated portfolio of around 25 holdings, which he picks according to companies' individual merits but also with an eye to certain investment themes. He believes that future performance will be driven by "winners from technological change".
The fund aims to provide capital growth from investing primarily in a portfolio of medium sized UK companies and was recommended as a top ten 'keep' by three of our experts. Rob Pemberton says: "This fund has a tremendous performance record, being one of the highest returning UK equity funds over the last five years by producing a gain triple that of the FTSE100 index. One slight note of caution, the fund has grown to nearly £2bn in size prompting the mandate to change to now include stocks sitting outside of the FTSE250. The manager Richard Watts has though proved to be an excellent stock picker over many years and may actually benefit from the wider universe of stocks available to him. Investors should appreciate that this fund will probably be somewhat more volatile than the typical UK equity fund, though this is a small price to pay for the long term returns record." Adrian Lowcock says: "Mr Watts looks to identify companies which have dominant market positions and are able to grow the business. He is looking for opportunities which the wider market have not fully taken into account and therefore undervalue the shares."
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 was formerly known as Ecclesiastical UK Equity Growth but Ecclesiastical has recently has a 'rebranding' and is now known as Eden Tree Investment Management.
Rob Pemberton says: "This fund has been unfairly overlooked by investors over the years and is still only around £200m in size. It is a flexible, multi-cap fund with approximately a third each in large, mid and small cap stocks. The long-term manager Andrew Jackson has delivered a tremendous long-term performance record being one of the highest returning UK equity funds over the last five years and producing a gain more than double that of the FTSE100 index."
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; and 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. The fund has outperformed by significant margin. Charles Tan thought we should drop it but his only objection was that it's open ended structure is not suitable for illiquid assets.
GLOBAL GROWTH (11 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 to the selection:
We have dropped Lindsell Train Investment Trust (LTI) Kieran Drake says: "While we rate the manager highly we believe that the significant premium at which the fund trades leaves investors open to potential premium/discount volatility. The manager himself has in the past been reported as saying that he viewed the premium as too high." The premium was at 20 per cent on 12 August and had been very high for a few months. We are replacing it with open-ended fund that Nick Train manages alongside Michael Lindsell.
The global income investment trust focuses on capital preservation and income. Fund manager Bruce Stout aims to hold different types of unique good quality companies in the portfolio and hold them for a long time. Diversification is the goal, though he pays little attention to sector diversification. Income and dividend growth is very important. Mr Stout is very concerned about the "horribly disfigured economic trends" that he sees today. Performance hasn't been great in recent months. However, Mr Stout explains: "The degree of share price appreciation is not a true reflection of distorted underlying economic fundamentals nor the operating environment which remains extremely challenging for many global companies. Given this and the problems facing the global economy I continue to believe that caution is warranted and Murray International's positioning reflects that with a broad spread of companies from around the world."
After a run of sterling performance in the 2000s, this global trust lost momentum and now lags well behind a number of other trusts in its peer group. What sets it apart from other global investment trusts is a strong tendency to favour family-run businesses. The directors have some serious skin in the game, which should provide some much needed reassurance to investors. Alan Brierley and Stephen Peters both picked it as a top ten one to keep. Mr Brierley says: "We believe that British Empire has defensive characteristics and we like the focus on good quality businesses, with strong balance sheets." Mr Peters says: "It's unloved but there's an opportunity for improvement as value emerges or the manager changes."
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. Alan Brierley thinks it may be time for investors to lock in some of the gains. He says: "Notwithstanding the achievements of the manager, we believe that the company will be vulnerable in a risk-off market, both at the NAV level and also with regard to the rating. Accordingly, we would look to lock-in some of the aforementioned gains." However, we're over-ruling his 'drop' recommendation as performance has been terrific, most investors should be investing for the long term and there's not much else around like this.
Picked out as a top ten 'keep' by five of our experts, this fund is also highly popular among Investors Chronicle readers. This is a high conviction global portfolio targeted at growth stocks. The trust aims to maximise total return, while also generating real dividend growth, from a focused and actively managed global portfolio, with a focus on the theme of technological change. The trust aims to achieve a greater return than the FTSE All World Index (in sterling terms) over a five-year rolling period. It has delivered solid, though volatile, returns over the long term, beating its benchmark substantially. It also has very low costs.
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. Performance has been good. It's a way to invest in investment trusts without worrying about premiums and discounts – the fund manager Peter Walls does that for you.
This is an investment trust that invests for growth through a globally diversified portfolio of investment trusts. Outperformance has not been massive but it offers a good core holding of investment trusts for your portfolio.
The portfolio, managed by Michael Lindsell, alongside Nick Train, is concentrated, with the number of stocks ranging from 20-35, and has low turnover. It has a focus on consumer stocks, with lots of exposure to the US, Japan and Europe.
The fund aims increase the value of shareholders' capital over the longer term from a focused portfolio of global equities, primarily those listed or traded on recognised Exchanges in developed countries world-wide. The fund's investment performance is compared with the MSCI World Index (Developed Markets) and is reported in Sterling.
The fund aims to provide above average long term capital growth from a global portfolio with a minimal income yield. It can invest in any transferable security in all recognised world financial markets.
Rob Pemberton says: "This is a growth orientated, global equity fund with significant mid and small cap company exposure. At a sector level there is a bias toward manufacturing and industrial stocks and a notable underweight in financials and natural resource companies. This fund is all about manager flair from James Thomson whose individual stock picking approach and high conviction concentrated portfolio will inevitably mean its performance can differ significantly from the peer group. This leads to the occasional wobble but the long term track record is outstanding with the fund significantly outperforming both the Global Equity peer group and MSCI World Index since launch in 2001." Darius McDermott says: "This fund is a core global equity fund for many of our investors in both Isas and Junior Isas. It remains a bit of a hidden gem."
This is an 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.
Charles Tan says: "James Henderson. Brilliant manager. Great long term track record. Undervalued fiduciary services business which provides symbiotic tax benefits."
This comes highly recommended by three of our experts. Rob Pemberton says: "The redoubtable Terry Smith has certainly 'walked the walk' by delivering exceptional returns since the launch of this fund five years ago. There is nothing 'clever' about this fund, just a focused, low turnover portfolio of high quality, cash generative businesses that have competitive advantages and a degree of certainty about future earnings growth. The number of holdings is normally only around 25 with a strong bias towards the US and the UK companies. This fund won't necessarily be a top performing fund every single year and it's fair to say that the style of stock it hold has been particularly in favour over the last few years. Nevertheless, the fund can be bought and then held for the long term in the knowledge that its underlying investments themselves have longevity, which actually is quite clever after all."
This global growth investment trust would make a good core portfolio holding and is recommended by three of our experts. Its actively managed multi-manager global equity approach gives investors access to a talented stable of managers, many of whom are not accessible to retail investors. Under the management of Andrew Bell 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)
Some of our experts criticised the list for being underweight the US. However, over the years we have struggled to find funds that invest in US equities and beat their index. Investors should look to the IC Top 50 ETFs for some ideas on how to invest passively in US equities.
Changes to the selection:
We have dropped Jupiter US Smaller Companies (JUS). Two experts disagreed on this one with Steve Wilson recommending it as a 'keep' and Alan Brierley a 'drop'. The fund has delivered significant underperformance of its Russell 2000 index benchmark. Yes, the manager takes a risk averse approach to investing in US smaller companies but investors still want outperformance, surely? Otherwise they could just buy an ETF in this sector.
This fund, recommended by Steve Peters, aims to invest in companies that are undervalued, either because they are out of favour or little value is given to their recovery potential. Fund manager Angel Agudo runs a relatively concentrated portfolio with a low level of turnover. He is relatively new, having been appointed to the fund in December 2012 but performance has since beaten the S&P 500 index by some margin.
The investment trust aims to invest in well-run companies with attractive and sustainable profits form the potentially faster growing smaller companies segment of the US stock market. 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 looks for companies that have a sustainable competitive advantage and are run by competent management teams which 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. The trust has beaten its Russell 2000 benchmark by significant margins over several periods. So although Alan Brierley recommended it as one to drop, we see no reason to.
JAPAN (4 funds)
Japan is a major economy so a balanced portfolio would have some exposure.
This is a sound choice for getting core Japan exposure into your portfolio. It invests in large cap Japanese companies with a focus on value. The fund's manager, Stephen Harker has a distinctive contrarian investment style which favours out-of-favour 'value' stocks. While three experts singled out and praised Mr Harker's skill in this area, Charles Tan worries that his contrarian approach "seems to have lost effectiveness in a market backed by QE". However, we're sticking with the fund due to its outperformance in recent years.
The fund aims to achieve capital appreciation through participation in the growth of the Japanese economy. Investment will be based primarily on Japan's economic strengths, such as its manufacturing industry (in particular on those parts of it that are demonstrating an ability to exploit newly emerging technology) and on sectors benefiting from structural change in the economy. Darius McDermott who recommends the fund says: "This is a very consistent fund and is one of just four funds which have beaten the Japan sector average in eight of the last ten years. A hidden gem." We agreed with him that performance has been consistently good and we like the clear investment policy and the fact that manager Andrew Rose has managed the fund since 2004. The fund has a sterling hedged version for investors who are worried about fluctuations in exchange rates.
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 has outperformed by significant margin. Alan Brierley says: "The focus is on the construction of a portfolio of exceptional businesses that can deliver superior growth over the long-term and there is a strong bias towards mid and smallcaps; investments are held for the very long-term and accordingly portfolio turnover is extremely low. A high quality manager is complimented by strong corporate governance."
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. It's the best performing and the cheapest in terms of ongoing charge among Japanese Smaller Companies investment trusts.
EUROPE (5 funds)
Many investors have been wary of investing in Europe because of the region's sovereign debt problems and the perception that it does not offer good returns. But there are some great opportunities over on the continent and we have added some new funds to the selection, to including an income option.
No changes to the selection.
The trust aims to achieve capital growth through investments in European securities, including UK equities. It focuses on quality shares and has an outstanding long-term performance record. Ben Seager-Scott says: "Given how unpredictable Europe has proven recently, and the likelihood that this continues into the future, this fund can be a good option for investors as the manager makes a point of hunting out companies with sustainable growth that can prosper across a range of economic scenarios." Fund manager Alexander Darwall has managed the fund since 2000 and has a significant amount of personal capital invested, making him an excellent steward of the trust.
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, Sam Morse, 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. It has outperformed by a significant margin.
This is a good way to access European Smaller Companies. The trust's managers look to find value and combine fundamental analysis, with scrutiny of balance sheets and cash flows. They believe the most important factors that influence stock returns are the value creation of the business and the initial price paid to own the equity. The trust also has a relatively low portfolio turnover rate - less frequent trading means costs eat less into the returns.
This fund is managed by Oliver Russ, who invests in European dividend shares with the key object of offering a high income (above 5 per cent per annum) from a concentrated portfolio of 30-55 European equities with some long term capital growth. Returns generated in euros are hedged into sterling to remove currency risk for UK investors. The fund can systematically sell call options to generate additional income. A 'call option' is a financial contract between two parties where the buyer of the option has the right, but not an obligation, to buy an agreed amount of shares from the fund at a specified date and price.
The fund is a concentrated 'best ideas' portfolio with the flexibility to invest across all industries in the European equity market, excluding the UK. It offers exposure to European companies with strong balance sheets and consistent earnings growth which are trading on attractive valuations. Ben Seager-Scott says: "The manager, John Bennett, is sensitive to valuations – though not dogmatically so – screening for attractively-valued stocks and then looking for a catalyst that will drive growth and re-rating of the stock through careful business analysis, along with his team."
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 South 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.
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.
Picked out as a top ten 'keep' by six of our experts, this is a fund to definitely take notice of. 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. Gavin Haynes says: "This fund remains an excellent choice to get core exposure to the exciting growth prospects in Asia. It is managed by the highly respected Angus Tulloch, with the backing of a strong and stable team. The fund's investment style is a pure stock-picking basis, with little regard paid to sector / country benchmarks. Mr Tulloch looks for sensible growth companies and pays attention to absolute risk and capital preservation."
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.
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 (5 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 to the selection:
We have dropped Templeton Emerging Markets (TEM). While two of our experts recommended this as a 'keep', four put it on their top ten 'drop' list. The trust has suffered from massive underperformance over several periods and its fund manager Mark Mobius is retiring. Darius McDermott says: "Mark has been a legend in the sector but performance hasn't lived up to hopes – it has underperformed in three of the last five years and cumulatively over five."
JPMorgan Chinese Investment Trust (JMC) has delivered steady returns but it is out because we think there's a better option for China (see below).
We've also dropped BlackRock Emerging Europe (BEEP) as performance has been negative and we already have exposure to fund manager Sam Vecht via BlackRock Frontiers.
The trust aims for 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.
The fund could be considered a safe pair of hands in a volatile, high-risk/high-reward sector. The investment team assesses 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. Darius McDermott says: "Value styles have suffered in emerging markets in recent times, but it is a good fund and when the style is back in favour, will reward."
This is an investment trust that offers access to dividend-paying stocks in the MSCI Emerging Markets index and has a good track record. Performance has been good and we think it is a useful income diversifier.
This investment trust aims to achieve long term growth from an unconstrained portfolio of companies focused on the long-term growth potential of China. It can invest in companies listed in China or Hong Kong and Chinese companies listed elsewhere, plus listed companies wtih significant interests in China and Hong Kong. Fund manager Dale Nicholls has made a very strong start and has a good track record before he was appointed to the trust in April 2014. It has a market cap of £771m, making it larger and theoretically more liquid than sector peer JPMorgan Chinese Investment Trust. Its factsheet is also much more informative.
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. Outperformance has been significant.
FRONTIER MARKETS (2 FUNDS)
Funds investing in frontier markets are ultra high-risk investments but could reap big rewards for investors with long timescales. Ben Seager-Scott says: "Not for the faint-hearted, frontier markets are one of the riskiest areas of relatively mainstream investing. Although this should not be a core part of an investor's portfolio, for those with a long investment horizon and a high risk appetite, this is an interesting investment area that can sometimes bring diversification benefits relative to developed and even emerging market equities."
No changes to the selection
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 Sam Vecht 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, leading three experts to recommend this fund as a top ten 'keep'.
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. Darius McDermott wanted to drop it as it "always has such a low weighting to the Middle East" However, the fund has decent exposure to Africa and emerging Europe, with index-beating performance too, so we're keeping it.
COMMODITIES (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. Many commodity funds have delivered big losses to investors in recent years and may be due a come back. However, investors should only have a small portion of their portfolio dedicated to this area.
Changes to the selection:
We're not arguing with the four experts who recommended we drop BlackRock World Mining Trust (BRWM). Alan Brierley says: "Although performance in recent years has been sobering, the recent write-off of the Marampa royalty (7 per cent of net asset value) begs questions of both the Board and the Manager, specifically with regard to risk controls, due diligence, strategy and communication." The dividend is unlikely to be sustained.
We're also dropping Investec Global Gold as fund manager Bradley George stepped down and was replaced by George Cheveley from 1 April 2015.
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 is well placed to perform if there is a turnaround in fortunes for the sector. Note that the manager uses gearing to boost returns, which means it is riskier than some other commodity funds.
The Fund aims to achieve long-term capital growth by investing primarily in the shares of gold mining companies, precious metal related companies and resources based companies quoted on recognised and eligible markets. The Fund may also invest in gold bullion shares, other transferable securities, money market instruments, deposits, collective investment schemes and warrants. The Fund will typically be fully invested in a spread of equities principally within the gold and precious metal industry. Manager Ani Markova has shown that she can add value in this sector.
This trust aims to achieve an annual dividend target and, over the long term, capital growth by investing primarily in securities of companies operating in the mining and energy sectors.
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 to the selection:
UK Commercial Property (UKCM) is out because its manager Robert Boag was replaced by Will Fulton at end of April 2015. Kieran Drake says: "There have been a number of significant changes at the fund over the last year with the change of management group (Ignis to Standard Life) and then the departure of the manager Robert Boag. In addition, the fund has one of the lowest yields in the peer group. Given these factors we believe that there are more attractive funds available to investors in this sector."
TM Hearthstone UK Residential Fund (GB00B95V2K41) is being dropped because three experts thought it was too niche but we think this fund is a good option for an investor who wants to build up a deposit for a UK house purchase and in performance terms it seems to be doing its job.
This is an open-ended property fund that invests directly in bricks and mortar and provides a large, well-diversified portfolio of commercial properties in bricks and mortar rather than property shares and so provides better diversification when held alongside equities. Performance has been good and steady and four of our experts picked it as a top ten 'keep'. Charles Tan who recommended it as a 'drop' only cited the open-ended structure which he thinks isn't suitable for illiquid assets. However, Gavin Haynes says: "The fund is managed by M&G Real Estate, one of the largest commercial property investors in the UK. The managers have a strong record and comprehensively cover the entire UK property market. The fund is fully invested, with over 60 UK commercial properties spread across the key sectors and offers good core exposure."
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. It has modest expenses, good overall performance and a good yield history.
It aims to provide an attractive level of income, along with the prospect of income and capital growth, by investing in a diversified UK commercial property portfolio. Keiran Drake says: "It is one of the more actively managed of the UK Commercial Property funds. Its manager, Jason Baggaley, has demonstrated his ability to add value through asset management initiatives and we would expect this to continue. Recent placings at premiums to NAV combined with strong NAV performance have significantly increased the fund's size and liquidity."
This trust aims to achieve attractive income levels and capital growth potential through investment in property in the Isle of Man, Channel Islands and UK. It is at the riskier end of the property fund spectrum.
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.
This is the first listed vehicle to give exposure to 'big box' assets in the UK; modern, very large, highly efficient distribution centres and logistics hubs that focus on lowering delivery costs. The trust's tenants are high-quality names such as Marks and Spencer, Next and Rolls-Royce, with strong covenants and opportunities to enhance capital value or income through active asset management. The yield is high and paid half-yearly.
This fund is invested in a global portfolio of property shares rather than bricks and mortar and has delivered good performance.
SPECIALIST/ALTERNATIVE (11 funds)
You might want to invest thematically or into areas that offer your portfolio diversification. Here are some funds that can do that.
Changes to the selection:
We're dropping Jupiter Financial Opportunities because we think we can do better elsewhere (see below). We're also dropping Graphite Enterprise Trust because we don't need 3 private equity trusts.
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. Stephen Peters says: "It's a quality way of getting exposure to country (US) and asset class (health)."
One of the largest and longest-established funds in the sector, with impressive performance over the short and long term. The trust is volatile and has a concentrated portfolio that uses gearing to boost performance. But it is tapped into some of the best new opportunities in drug development and favours large-cap players with larger pipelines and revenues. Alan Brierley says: "The managerial resource of OrbiMed, with 80 highly experienced investment professionals, gives the company a unique competitive advantage."
The Aptus Global Financials Fund aims to produce capital appreciation with an attractive, growing income stream. The Fund follows a strategy of gaining exposure to equity and other securities of financial services and property companies globally. Key areas of investment include banks, investment banks, insurance and asset management companies. The fund is managed by Johnny de la Hey who leads an experienced team of sector specialists at Toscafund Asset Management LLP whose combined investment experience spans over 70 years. Stephen Peters recommended it as a better option than Jupiter Financial Opportunities because it is "a better fund with higher quality management". It has had better performance than the Jupiter fund since launch and has a very detailed factsheet with interesting fund manager commentary.
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.
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.
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. Darius McDermott says: "A pioneer in this asset class, it has captured the attention of income-focused investors looking to diversify their holdings. The recent shift towards more economically-sensitive assets is a move designed to insulate the portfolio from the impact of rising interest rates."
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.
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.
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.
The trust aims to maximise capital growth by investing in a globally diversified portfolio of private equity funds and, occasionally directly in private companies.
Its holdings are spread across different investment styles and stages to reduce volatility. Alan Brierley says: "Pantheon gives investors a highly diversified and lower risk exposure to global private equity. With 72 investment professionals, the management team can demonstrate a significant depth of resource and an extensive network of contacts. Additionally, the manager is one of the largest secondary private equity fund investors, and this gives the company a competitive advantage.
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 premium, 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. Although Stephen Peters thought it was too niche for the selection, it has beaten its benchmark and we think it can be a useful diversifier away from equities for experienced investors.
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 to consider.
No changes to the selection.
The fund aims to enable investors to benefit from growth in the markets for cleaner or more efficient delivery of basic services of energy, water and waste. Investments are made predominantly in quoted companies which provide, utilise, implement or advise upon technology-based systems, products or services in environmental markets, particularly those of alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management (which includes sustainable food, agriculture and forestry.
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. It's a steady performer. Charles Tan only objected to it because "ethical investing isn't my cup of tea".
Having launched its first UK retail ethical fund in 1984, F&C has a 25 year track record in running ethically-screened funds. This 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. It has outperformed by a significant margin.
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. Three of our experts recommended this fund as a top ten 'keep'.