Top 100 funds 2016

For this reason, each year we collate the IC Top 100 Funds, to try to help you home in on some of the better performing active funds with reasonable investment charges. Although you should hold investments in risk assets such as these funds for the long term, we review this list on a yearly basis. This is because the economic and market situation changes, and the situation can also change at individual fund level. A fund manager could leave, for example, or underperform for a number of years or a fund could increase its ongoing charge.

This year 27 new funds have joined the list.

About the list

The IC Top 100 Funds looks to cover the major sectors and asset classes most private investors might include in their portfolios. Some of the IC Top 100 Funds could be used as core holdings, while the ones focused on high-risk and esoteric assets should only account for a small portion of portfolios – preferably larger, long-term ones.

We have divided the fund list into categories to try to make it clearer what a fund does and where it might fit into your portfolio.

How we created the list

We started by looking at how each fund has performed against relevant indices and fund sector averages. Then we looked at the fund’s charges, because if these are high they can eat away considerable amounts of your returns, especially over the long-term timescale over which you should hold these funds. High ongoing charges were also the reason for a number of funds being removed from the list.

We then asked our panel of experts for their verdict on each fund, and also took into consideration a number of other sources, including the tips and articles we have written over the past year, and other analyst research and commentary. In terms of adding new funds, we considered our experts’ suggestions, our own tips and articles, and analyst research, alongside performance data and costs.

Expert panel

Our expert panel comprises nine investment professionals, including fund analysts and wealth advisers. Some of the panel reviewed open-ended funds, some reviewed investment trusts and some looked at both, as indicated. They are:

■ Emma Bird, research analyst, Winterflood (investment trusts).

■ Gavin Haynes, managing director, Whitechurch Securities (both).

■ David Liddell, chief executive, IpsoFacto Investor (both).

■ Ewan Lovett-Turner, director, investment companies research, Numis Securities (investment trusts).

■ Adrian Lowcock, investment director, Architas (open-ended funds).

■ Darius McDermott, managing director, Chelsea Financial Services (open-ended funds).

■ Stephen Peters, investment analyst, Charles Stanley (investment trusts).

■ Ben Seager-Scott, director of investment strategy & research, Tilney Bestinvest (both).

■ Ben Yearsley, investment director, Wealth Club (both).

Dos and don’ts

Do not go out and buy all 100 funds! This is a selection from which you could pick a few. Typically a fund portfolio is made up of anything between three and 15 funds, depending on factors such as its size. We will be running articles in the Money section over the year ahead on how investors with different amounts of money, timescales and risk appetites could construct a portfolio using funds. You can also see some suggestions on this in the weekly Portfolio Clinic.

This list is just a starting point, so before you invest in any of these suggestions do a lot more research. However good a fund is, if it doesn’t fit in with your investment goals, risk appetite and asset allocation, then it isn’t appropriate for you.

Before you invest, make sure you understand how the fund works and exactly what its underlying assets are, together with the risks.

This list isn’t the be all and end all – we only have space for 100 funds so consider things beyond it. We certainly do – we highlight other good funds in our articles and weekly fund tips.

Passive funds also have an important role to play in portfolios, so have a look at our IC Top 50 ETFs list for some suggestions.

Don’t sell a fund just because we dropped it from the list. We have excluded funds for a variety of reasons, and as we have a finite number we cannot include every good fund. And some decisions were a close call. If you hold a fund we have dropped there might be a number of reasons for sticking with it.

Selling can also incur tax and a trading charge. Only sell a fund after you have conducted thorough research on it.

Some of the investment trusts on the list are on high premiums to net asset value (NAV). If this is the case it may be best to delay your purchase until the premium has reduced or moved to a discount, even though the trust is still fundamentally a good proposition. We will highlight such opportunities in our articles and weekly fund tips.

We have evaluated the funds’ costs on the basis of their ongoing charge. However, you will also have to pay trading and/or holding costs on top of this. We chose the funds from a structure-agnostic perspective, but some platforms have different charging structures for investment trusts and open-ended funds, so you will also need to factor this in when deciding whether to invest in a fund.

And always remember that past performance is not a guarantee of future performance.

Bonds (9 funds)

Bonds are not the safe haven they once were and yields are not as attractive. But most portfolios should include them to achieve a balance, especially as cash yields so little and due to concerns over property. Fixed income is a wide and diverse asset class and it is possible to find attractive yields, better returns and mitigate against inflation – with the right funds. For this reason the updated selection includes many strategic bond funds. Their managers can invest across the fixed-income spectrum in an unconstrained way, going to the areas that look best and avoiding less desirable areas. However, these can be higher risk than traditional corporate bond funds, so are not necessarily suitable for lower-risk investors.

Changes to the selection: We have dropped M&G UK Inflation Linked Corporate Bond (GB00B460GC50) because the total returns have not been good, and it does not offer a particularly attractive yield. A good strategic bond fund should be able to protect against inflation, too.

Kames Absolute Return Bond (IE00B6SLQ646) was dropped because it has not been delivering as well as some other absolute-return funds – you can do better.

CQS New City High Yield Fund (NCYF) has been dropped because it hasn’t performed as well as some of its listed debt peers, and its ongoing charge is more than that on a number of open-ended strategic bond funds. Ben Seager-Scott says: “A focus on mid- and small-sized companies whilst limiting investment largely to sterling-denominated assets seems too niche and restricted for most portfolios. I would favour something with a bit more flexibility.”

NB Global Floating Rate Income Fund (NBLS) has underperformed most of its listed debt peers – investors wanting a fixed-income fund can do much better.

MI TwentyFour Dynamic Bond (GB00B57TXN82)

The Dynamic Bond has a highly flexible approach that enables its managers to take advantage of prevailing market conditions as they change over time. It can get exposure to debt instruments from the whole range of fixed-income assets including high-yield bonds, investment-grade bonds, government bonds, asset-backed securities and emerging market sovereign bonds. This fund differs from a number of strategic bond funds due to a consistent weighting to asset-backed securities, an area in which its managers specialise.

It can also use derivatives to either optimise or reduce exposures, giving the fund the opportunity to perform in both rising and declining rate environments throughout the economic cycle.

The fund has delivered strong long-term returns and provides an attractive yield. It was favoured by a number of panel members. “This is one of my favourite bond funds,” says Darius McDermott, managing director of Chelsea Financial Services. “It’s run by a very specialist and knowledgeable bond team, who make full use of all the instruments available to them.”

Henderson Strategic Bond (GB0007502080)

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.

“The team takes an active asset allocation view when building the portfolio and combines this with good stock selection skills,” says Adrian Lowcock. “The managers are comfortable taking risks when they believe it appropriate and the fund can use derivatives and go negative duration if they see fit.”

It is run by two very experienced and well regarded fixed-income managers – John Patullo and Jenna Barnard, co-heads of strategic fixed income at Henderson.

Jupiter Strategic Bond (GB00B544HM32)

Jupiter Strategic Bond can invest in assets including high-yield bonds, investment-grade bonds, government bonds, preference shares, convertible bonds and other bonds. The fund may invest in derivatives and forward transactions for investment purposes. Its manager, Ariel Bezalel, looks for investments offering value and good risk/reward potential.

The fund is aimed at investors who want to achieve high income with the prospect of capital growth, while at the same time investing across the credit ratings spectrum.

A number of panel members favoured keeping this bond. “Since launch Ariel has demonstrated that he has an aptitude for reading the economic cycle,” says Darius McDermott. “This, combined with some solid stockpicking, has seen the fund perform well. His emphasis on controlling the downside has seen the fund post some exceptional risk-adjusted performance figures.”

Aberdeen Emerging Markets Bond (GB00B5V8SG93)

This fund aims to provide income and grow capital by investing in the debt of emerging market governments and companies. Its managers will not invest in a bond until they fully understand it, which is achieved by fundamental research, including country visits. It offers one of the best yields in its sector.

“This is a steady fund in what can be a volatile sector and it pays a very attractive yield of about 7 per cent,” says Darius McDermott. “The management team has an extensive network of contacts in governments and central banks as well as the International Monetary Fund (IMF).”

NEW ENTRANT: Royal London Sterling Extra Yield Bond (IE00BJBQC361)

This fund is one of the top performers in its sector over the long term and offers the best yields in the Sterling Strategic Bond fund sector. It invests in a broad range of fixed-interest securities, including investment-grade, sub-investment-grade and unrated bonds. This combination provides higher yield, which puts it at the higher-risk end of the strategic bond fund spectrum, although it is arguably not as high-risk as a high-yield bond fund. It also has a very low ongoing charge of 0.41 per cent.

The fund aims for a gross redemption yield of 1.25 times the gross redemption yield of the FTSE Actuaries British Government 15 Year index, although the fund itself is not benchmark constrained. It’s value oriented and its manager, Eric Holt, aims to exploit credit market inefficiencies by investing in a combination of investment-grade, sub-investment-grade and unrated bonds.

Ben Yearsley says: “Eric Holt is a top-notch manager and he has delivered for many years.”

NEW ENTRANT: Fidelity Strategic Bond (GB00B469J896)

Fidelity Strategic Bond aims for a relatively high income with the possibility of capital growth, with low volatility. The fund tends to focus on higher-quality investment-grade bonds, with exposure to high-yield strategies normally limited to 20 per cent of the portfolio. Cash and index-linked bonds are another option within the mandate. Its manager, Ian Spreadbury, also aims for a low correlation to equities. It also uses derivatives to more efficiently manage currency, credit, duration and country risk.

The fund is at the lower-risk end of the strategic bond fund sector. “Ian Spreadbury is amongst the more consistent and more conservative fixed-income managers across his peer group,” say analysts at Tilney Bestinvest, which gives the fund its highest five-star rating.

Royal London Ethical Bond (GB00B7MT2J68)

Royal London Ethical Bond aims to achieve a combination of income and capital growth, by investing mainly in investment-grade UK credit bonds that meet predefined ethical criteria, avoiding bonds from issuers involved with alcohol, armaments, gambling, tobacco, pornography and animal testing, as well as ones that have a high environmental or human rights impact.

Despite these restrictions, it is one of the best performing funds in the Sterling Strategic Bond sector over one, three and five years, and offers an attractive yield of nearly 4 per cent. Its excellent returns mean it should appeal to both ethical and non-ethical fixed-income investors. The fund also has a very reasonable charge of 0.51 per cent.

Henderson Diversified Income (HDIV)

Henderson Diversified Income is run by the same managers as Henderson Strategic Bond but has a higher allocation to loans and high-yield bonds than the latter fund, and has a higher yield at over 5 per cent. It aims for a high level of income and capital growth over the longer term and to provide shareholders with ongoing total returns of at least three-month sterling Libor plus 2 per cent.

It is one of the best performing listed debt funds. “Henderson Diversified Income is an interesting vehicle to gain diversified exposure to credit markets,” say analysts at Numis Securities. “The managers allocate capital opportunistically depending on relative value and have currently roughly evenly split the portfolio between senior secured loans, high-yield bonds and investment-grade bonds. The managers are focused on higher-quality credits and expect yield to dominate returns in the medium term.”

The trust’s management fee was reduced in November 2015 from 0.65 per cent to 0.60 per cent of net assets, and although its performance fee remains in place, the cap on total fees has been reduced from 1.5 per cent to 1.2 per cent of NAV. This means its ongoing charge of 1.4 per cent could fall.

City Merchants High Yield Trust (CMHY)

City Merchants High Yield is one of the best performing listed debt funds and offers an attractive yield of about 5.3 per cent. It currently has no gearing, making it more conservative than some listed debt funds, and its managers remain defensively positioned with exposure focused on higher-quality companies they consider unlikely to default.

Around a quarter of its portfolio is allocated to bank bonds, with the highest allocation to the junior tiers of bank capital. It also has an allocation to non-financial hybrid bonds, a type of relatively junior debt in a company’s capital structure, in issuers its managers think have strong balance sheets.

Emma Bird at Winterflood says: “City Merchants High Yield has a strong long-term performance record from investing in high-yield credit. It benefits from a well-resourced and highly respected investment team (that includes veteran bond managers Paul Causer and Paul Read), which has been able to take advantage of valuation opportunities historically following volatility or market setbacks. Its managers have a good track record with regard to defaults and we believe that the fund’s current yield remains attractive at a time of low interest rates.”

WEALTH PRESERVATION (7 FUNDS)

Including a fund that can limit downside in your portfolio is probably a necessary requirement for most balanced portfolios in all market environments. But with a very uncertain environment that has already seen considerable market volatility, for reasons including an unclear future for the UK following the vote for Brexit, US elections and concerns around the scale of China’s credit bubble, limiting downside is more important than ever. And with poor returns from low risk bonds and property funds in turmoil, investors need to find other ways to diversify away the equity and higher risk portions of their portfolios.

Multi-asset funds that look to reduce volatility and downside are an option, as are targeted absolute-return funds, which aim to deliver positive returns in any market conditions, although don’t guarantee to do this.

Changes to the selection: We have dropped Ruffer Investment Company (RICA) because we have three other investment trusts with a focus on wealth preservation in the list. These have generally performed better than Ruffer, which has also underperformed broad indices such as the FTSE All-Share and FTSE World ex UK.

We have also dropped Invesco Perpetual Distribution Fund (GB00BJ04FH62) as this multi-asset fund has not performed well against its sector peers over one and three years.

RIT Capital Partners (RCP)

RIT Capital Partners is a multi-asset investment trust which aims to deliver long-term capital growth while preserving shareholders’ capital. It invests in quoted and unquoted assets such as hedge funds which private investors could not necessarily access directly.

A number of panellists suggested keeping it in the selection. “RIT Capital remains a core holding around which investors can build a portfolio,” says Stephen Peters. “At the time of writing it looks expensive (on a premium to NAV of about 3 per cent) but long-term shareholders should not worry overly about this.”

Personal Assets Trust (PNL)

Personal Assets Trust aims to protect and increase the value of shareholders funds per share over the long term. It does this by investing in assets including equities, index-linked government bonds and gold.

It doesn’t trade at excessive discounts or premiums to NAV because it tries to ensure that its shares always trade close to NAV by using share buybacks and share issues.

A number of panellists favoured keeping this investment trust in the list. “Personal Assets’ defensive approach means we would expect it to outperform in weak equity markets and therefore it is reassuring to see it deliver on these credentials,” says Ewan Lovett-Turner. “The manager’s cautious approach and the fund’s emphasis on capital protection matches the risk/return objectives of many private investors. The zero-discount policy means that there is minimal discount volatility, and we continue to believe that Personal Assets is an attractive long-term vehicle for cautious retail investors.”

Capital Gearing Trust (CGT)

Capital Gearing Trust aims for absolute returns by investing in equities, bonds and commodities, and gets exposure to equities by investing in other investment trusts. The trust has delivered positive NAV returns in every calendar year since 2006, including in difficult years such as 2008 when it made 5.76 per cent against a fall of 30 per cent for the FTSE All-Share. Its share price returns have been positive in all but two of those years. “Like Personal Assets, it will shine when times get hard,” says Stephen Peters. Its ongoing charge of 1.04 per cent is not high for a fund of funds.

Newton Real Return (GB00BSPPWT88)

Newton Real Return aims to deliver a minimum return of cash (1-month GBP Libor) + 4 per cent a year over five years before fees, and a positive return on a rolling three-year basis. It invests in a range of assets including bonds, equities and gold.

The fund has generated positive returns in the past four calendar years, and made only a slightly negative return in 2011 when the FTSE All-Share fell further.

“Capital preservation is the central theme manager Iain Stewart takes with this fund,” says Adrian Lowcock. “The generally defensive manner in which the fund is managed means it tends to underperform the wider stock market when it rises, but outperform in tougher market conditions. Mr Stewart has an unconstrained flexible approach and takes a long-term view of investments. A defensively positioned portfolio with exposure to US treasuries and gold has boosted performance in 2016.”

Standard Life Global Absolute Return Strategies (GB00B7K3T226)

Standard Life GARS has proved successful at generating positive returns every calendar year. Its managers look 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, and investment strategies based on advanced derivative techniques, resulting in a highly diversified portfolio. It can take long and short positions in markets, securities and groups of securities through derivative contracts.

The fund has grown considerably in size – it is now over £26bn – although some of its original investment team have left and it has not done so well in the year to date. However, it continues to follow the investment strategy that has proved so successful for many years, and David Liddell says: “I would keep Standard Life GARS. This may seem odd as recent performance has been poor, but what I am looking for is a fund that at least has the potential to be somewhat uncorrelated with equities. This looks like a genuine hedge fund, which if, for example, combined with an equity fund should help achieve the wealth preservation objective.”

Henderson UK Absolute Return (GB00B5KKCX12)

Henderson UK Absolute Return has delivered positive returns in each of the past five calendar years in line with its objectives, and in terms of cumulative total returns is among the top-performing targeted absolute-return funds over three and five years. It aims to provide a positive return over the long term whether markets go up or down by investing primarily in UK company shares, and also uses derivatives to achieve its objectives.

“This fund has continued to deliver a solid and consistent return for investors,” says Adrian Lowcock. “It combines a core portfolio and short-term tactical investments to achieve its goals. The core portfolio invests in companies that could provide unexpected earnings growth and generate value for investors.”

NEW ENTRANT: JPM Global Macro Opportunities (GB00B4WKYF80)

This fund only launched three years ago but was among the best performing targeted absolute-return funds in 2014 and 2015, and the strategy has been running for longer in an offshore fund. It incorporates an unconstrained approach to asset allocation, as well as employing relative value and derivative strategies, with the aim of achieving cash +7 per cent gross of fees over the medium term, with a 6-10 per cent volatility risk budget.

Ben Seager-Scott says: “This is a competitively priced multi-strategy absolute-return vehicle (the fund has an ongoing charge of only 0.78 per cent), using the highly regarded multi-asset solutions team at JPMorgan. Its managers use a wide range of strategies based on their macroeconomic view, which include traditional market-directional trades as well as more sophisticated trades, such as relative value.”

Source: Morningstar

*Share price return

**Performance is of a an older share class with a longer track record rather than the one indicated in the text

*** AIC using Morningstar

GLOBAL EQUITY INCOME (5 FUNDS)

UK investors have tended to have a bias to the home market, so adding overseas has been important. But the importance of diversifying your equity income sources has grown over the past few years, as the UK market has become more and more reliant on a few dividend payers, many of which have announced dividend cuts this year. With the added uncertainty following the Brexit vote, diversity has never been more important, and with the many attractive opportunities outside the UK you could improve your income.

Murray International Trust (MYI)

Murray International had delivered strong returns over the years, but didn’t do so well in 2013, 2014 and 2015 due to its low US exposure and high weighting in Asia and Latin America/emerging markets. However, over the past year it has returned to form, beating broad indices such as FTSE World ex UK and the FTSE All-Share, and its Global Equity Income sector peers, in part driven by the allocation to these regions.

“This year [2016] has seen Murray International justify the faith investors like ourselves have had in it,” says Stephen Peters. “Helped enormously by its exposure to Latin America, it has performed very well. In a world of perma-bullishness from managers and groups looking to grow assets, manager Bruce Stout’s avowed perma-cautiousness is a welcome change.”

Murray International is focused on equities, but also has an allocation of about 15 per cent to fixed-income to boost revenues and support its yield, which stands at around 4 per cent.

It has a reasonable ongoing charge of 0.75 per cent.

F&C Managed Portfolio Income (FMPI)

Historically this fund of investment trusts has delivered good performance, but it has not done so well over 2013, 2014 and 2015, or in the year to date. But if performance turns it would again be a good core global income holding for small portfolios that can’t diversify across many funds, so it is worth hanging on to this to see if it returns to form.

Newton Global Income (GB00B8BQG486)

Newton Global Income has performed very strongly over the years and is the top performing open-ended Global Equity Income fund over one and three years. Much of this performance is due to former manager James Harries, though, who left at the end of last year.

However, the fund is still favoured by three of our open-ended fund panel because it was run very much along a team approach, which should mean little change to the investment strategy. New lead manager Nick Clay has nearly a quarter of a century of investment experience, and has been alternate manager on Newton Global Income since 2012.

“Despite the change of manager in December 2015, we believe the house strategy and consummate research depth will continue the good performance of this fund – and indeed it has had a good start under the new manager,” says Darius McDermott. “Considering the concentration of dividend-paying stocks in the UK, this fund’s global reach should be a great diversifier for those looking for a stable income.”

Artemis Global Income (GB00B5N99561)

Artemis Global Income is the top-performing Global Equity Income Fund over five years, and one of the best over three. It adopts a value bias looking for cheaper, out-of-favour equities, which can be a good approach as equity income shares can be relatively expensive due to their popularity with investors seeking an attractive yield amid low interest rates and poor returns on bonds.

The fund has a substantial allocation to Europe ex UK and less in the US than some of its sector peers, which differentiates it, although it is slightly more aggressive than some global income funds.

“This is one of the top-performing funds in what is becoming an ever more important sector,” says Darius McDermott. “Jacob’s process is well defined, but allows some flexibility for him to express his views. His slightly atypical approach to identifying stocks, namely by avoiding mega-caps, has served the fund well and is a distinguishing feature.”

Because it takes a slightly different approach to Newton Global Income these two funds complement each other and could work very well when held together within a portfolio.

NEW ENTRANT: Fidelity Global Dividend (GB00B7778087)

Fidelity Global Dividend only launched four years ago but is among the top-performing funds over one and three years, and yields around 3 per cent. This fund aims to grow its income ahead of inflation and 25 per cent more than the MSCI All Country World Index.

Manager Daniel Roberts does not follow indices or benchmarks, but rather selects stocks for their potential income. He has a total-return focus, so looks to invest in companies that pay a sustainable and growing dividend, and does not chase an income at the expense of capital growth. He also likes companies that look attractively valued over the whole cycle or longer term, rather than just current valuations. This fund is run with a cautious view and capital preservation is an important component. The fund has about a third of its assets in North America, and more than a quarter in continental Europe.

Source: Morningstar as at 31 August 2016

*AIC using Morningstar

**Performance is of an older share class with a longer track record rather than the one indicated in the text

OVERSEAS EQUITY INCOME (6 Funds)

Regional funds are, in theory, higher-risk because what they generate rests on the fortunes of one region. In particular Asian equity income funds may have exposure to emerging markets, which are potentially more volatile and high risk. However, if you have a large portfolio you could hold some regional equity income funds alongside your UK and global equity income funds, which could provide stronger returns.

Changes to the selection: Three of our open-ended fund panelists suggested dropping Legal & General Asian Income (GB00B409KQ03) for reasons including the availability of better options in terms of performance and yield.

JPM US Equity Income (GB00B3FJQ482) has been dropped because its yield is only around 2 per cent, and like many active US funds it fails to consistently beat indices such as the S&P 500.

We have dropped Middlefield Canadian Income (MCT) investment trust because it has a small market cap (£99m), which can cause liquidity problems, and it has underperformed the S&P 500 over the long term, as well as its own benchmark S&P/TSX Composite Index.

We have also dropped Liontrust European Enhanced Income (GB00B7KG1P88) because it hasn’t been delivering good total returns recently. There are better European equity income options.

Aberdeen Asian Income Fund (AAIF)

Aberdeen Asian Income has underperformed MSCI AC Asia Pacific ex Japan Index and its closed-end Asian equity income sector peers over one, three and five years following underperformance in 2013, 2014, 2015. But Aberdeen has a strong historic record in Asian and emerging markets and the trust has been doing better this year. It also yields around 4 per cent and expects to pay an 8.5p full-year dividend as it did last year.

“The Aberdeen style has been out of favour, but long-term shareholders would not be too bothered by this,” says Stephen Peters. “This trust has recently shown signs of improvement in performance.”

The trust has also recently cut its fee from 1 per cent of net assets to 0.85 per cent, which should reduce its 1.25 per cent ongoing charge. At time of writing it was trading at a discount to NAV of around 4 per cent, but has historically traded much tighter including at a premium. If performance continues to improve this could tighten.

Schroder Oriental Income (SOI)

This is the stand-out performer among closed-end equity income funds and is run by highly regarded Asia manager Matthew Dobbs. He has made strong returns by focusing on quality companies with strong balance sheets, sustainable earnings, cash flows and corporate governance, which he looks to buy at attractive valuations.

“This is a good trust in an increasingly competitive sector, run by one of the most experienced managers in the UK today,” says Stephen Peters. “It has the best long-term track record of the three listed funds, and stacks up well against its open-ended peers.”

NEW ENTRANT: Jupiter Asian Income (GB00BZ2YMT70)

Newton Asian Income Fund has delivered some good returns and attractive income over the years, but last year manager Jason Pidcock left for Jupiter, where he launched Jupiter Asian Income earlier this year. While it’s early days for this fund, Mr Pidcock has a long and successful track record, so if he emulates what he has done in the past this fund should reap the returns for investors.

Although Jupiter Asian Income aims to yield around 20 per cent more than FTSE All World Asia Pacific ex-Japan Index, it is not targeting a set yield figure and will also invest in fast-growing companies with small yields that have the potential to become larger income players.

European Assets Trust (EAT)

European Assets Trust is focused on smaller companies but pays out an attractive income and has a high yield, because it pays income out of capital as well as the dividends it earns from its portfolio holdings. It pays dividends in euros, which will be boosted if sterling is weak.

It has underperformed the Euromoney Smaller Euro Companies Index and most of its closed-ended European smaller company peers over one and three years, but historically has done well. As a result it is trading at a discount to NAV, but this could tighten or return to a premium if it returns to form.

NEW ENTRANT: BlackRock Continental European Income (GB00B3Y7MQ71)

As well as offering an attractive yield of about 4 per cent, BlackRock Continental European Income is one of the top performers among all Europe ex UK open-ended funds over one, three and five years. Its managers make their returns by looking for undervalued high-yield or quality stocks that offer reliable, sustainable dividends, potential dividend growth and protection against inflation, with lower-than-average risk.

Darius McDermott says: “BlackRock has a very strong European team and the fund pays an above-average yield with below-average volatility.”

JPMorgan Global Emerging Markets Income Trust (JEMI)

Despite emerging markets being associated with high growth there are also a number of income opportunities. These could be a useful addition for investors with a higher risk appetite and long-term time horizon, both in terms of income and the potential for long-term capital growth. JPMorgan Global Emerging Markets Income offers an attractive yield of about 4 per cent and has a significant allocation to shares listed in Taiwan, China and South Africa.

Source: Morningstar as at 31 August 2016

*AIC using Morningstar

UK EQUITY INCOME (9 FUNDS)

The UK has traditionally been the go-to area for equity income, with the home index offering one of the highest yields. However, this area has faced problems over the past few years, with banks cancelling dividends during the financial crisis and this year a number of major companies announcing dividend cuts.

But there are still good opportunities for good funds and managers to home in on. Investment trusts also have the benefit of being able to hold back dividend income in good years, meaning they have reserves that enable them to maintain or even increase dividends in leaner years.

Changes to the selection: We have dropped Schroder Income Maximiser (GB00B5B0KM51) because despite offering a high yield, its returns have lagged many of its competitors. Three panellists suggested dropping it for reasons including the fact that none of the managers who ran it at launch is still there.

We have also switched Perpetual Income and Growth Investment Trust (PLI) for Edinburgh Investment Trust, as this is a cheaper way to access manager Mark Barnett’s stock-picking skills.

CF Woodford Equity Income (GB00BLRZQB71)

Neil Woodford is arguably the UK’s most high-profile manager, having earned his reputation by making incredibly strong returns with his income funds at Invesco Perpetual for many years. This fund only launched two years ago, but if it replicates the success of Mr Woodford’s funds at Invesco, investors will reap very handsome rewards. Three of our open-ended fund panellists favoured keeping this fund in the list.

“Neil’s renowned ultra-long-term investment approach has been tried and tested across a wide range of market conditions and has held up particularly well in tough markets,” says Darius McDermott. “Neil was, and continues to be, the go-to name in the equity income space.”

The fund also has a very low ongoing charge of 0.65 per cent.

MI Chelverton UK Equity Income (GB00B1FD6467)

Much of the UK’s dividend payout is made by a few large companies, meaning if even one of these cuts their dividend it could have a serious impact on the investors relying on this section of the market. But a number of smaller companies also pay attractive dividends, so for investors with a long-term time horizon and higher risk appetite, a UK equity income fund focused on smaller companies could be a good way to diversify their income stream.

MI Chelverton UK Equity Income invests in small and mid-cap companies and at time of writing yielded more than 5 per cent. The fund’s managers look for investments that are capable of increasing their returns over future years, and seek companies that generate cash on a sensible and sustainable basis, which is then used to grow the business and reward shareholders. They favour companies where management strikes an appropriate balance between current and future income.

“This has been a star performer over the past five years,” says Adrian Lowcock. “2016 has been less impressive but the fund is performing well compared with its peers. Its managers place a strong emphasis on business and balance sheet analysis.”

Rathbone Income (GB00BHCQNL68)

Rathbone Income aims for above-average and maintainable income, but without neglecting capital security and growth. Its manager, Carl Stick, looks for shares with an above-average yield, and focuses on businesses with a sustainable competitive advantage. He takes a long-term view, with the aim of avoiding permanent capital loss.

This fund is not included in the Investment Association UK Equity Income sector because it does not meet the yield requirement. Despite this, it still delivers good total returns and a reasonable yield of 3.7 per cent, so is still worth holding as there is no point in having a high-yielding fund that loses your capital.

Darius McDermott says: “This fund has only cut its yield once in 20 years, I think that is more important than hitting a short-term target.”

NEW ENTRANT: Evenlode Income (GB00B40Y5R17)

You also won’t find Evenlode Income in the UK Equity Income sector, but this fund has made strong total returns alongside a reasonable yield of 3 per cent.

Gavin Haynes suggested adding it because “manager Hugh Yarrow has delivered strong performance since launching this fund in October 2009, outstripping both the UK market and the peer group. He follows a strict investment process and his focus on investing in large-cap, defensive companies with solid yields has significantly added to recent performance. This is a good core UK equity income holding”.

Ben Seager-Scott also suggested this fund, saying: “Despite formerly being ranked in the UK Equity Income sector, this fund could fit well in many portfolios, particularly those looking for a more balanced style. Manager Hugh Yarrow focuses on quality companies that both pay out an income and reinvest to enable the company and its dividends to grow, making it attractive both from a capital growth and steady income perspective.”

Finsbury Growth & Income Trust (FGT)

This is the top performer among closed-end equity income funds over one, three and five years, and also well ahead of the FTSE All-Share over those periods. The yield on this trust, which is run by highly regarded manager Nick Train, is not that high but with such fantastic performance, you could sell shares and create your own income. Also a good option for growth investors.

Its charge of 0.78 per cent is very reasonable considering its outstanding performance. An easy keep!

Diverse Income Trust (DIVI)

Diverse Income Trust can invest in companies with a wide range of market capitalisations, although has a bias to small and mid-caps, an area in which its manager, Gervais Williams, has great experience. It also has more than a third of its assets in Alternative Investment Market (Aim) shares, so offers something fairly different to traditional UK equity income funds.

Diverse Income Trust is one of the top performers among closed-ended UK equity income trusts over longer periods, although has not done so well over one year. “Gervais’ long-term track record is strong and this is a good fund, although concerns over Brexit have held back its performance in recent months,” says Stephen Peters.

City of London Investment Trust (CTY)

City of London Investment Trust has raised its dividend every year for 49 years – longer than any other investment trust. It has also delivered good long-term total returns and has a very low ongoing charge of 0.42 per cent. It has an experienced manager, Job Curtis, who has run the trust since 1991 and takes a consistent, cautious long term approach. Ewan Lovett-Turner says it is a “good core holding”.

Lowland Investment Company (LWI)

This all-cap investment trust makes strong returns over the long term, but is highly volatile – a typical characteristic of well-regarded manager James Henderson’s approach. It offers a reasonable yield of about 3.4 per cent. It has not performed so well over the past year, but this means it can be picked up at a discount to NAV, instead of the premium it often trades on.

“The manager’s exposure to value has been offset by the post-Brexit swoon in mid and small cap-stocks, but long-term investors won’t be disappointed with its past performance,” says Stephen Peters. “If FTSE 100 stocks outperform smaller companies, this trust is likely to struggle to beat its benchmark and peers.”

NEW ENTRANT: Edinburgh Investment Trust (EDIN)

Perpetual Income and Growth Investment Trust made strong returns over the years under the management of Mark Barnett. A couple of years ago Mr Barnett took over management of Edinburgh Investment Trust and some other funds from Neil Woodford. And Edinburgh has a much lower ongoing charge – 0.61 per cent against 1.06 per cent for Perpetual Income and Growth, which has a performance fee. While the two trusts’ portfolios are not exactly the same, there are similarities – and fees have a very detrimental effect on returns over time – so this is a much cheaper way to access Mr Barnett’s stock-picking skills.

Source: Morningstar as at 31 August 2016

*AIC using Morningstar

**Performance is of an older share class with a longer track record rather than the one indicated in the text

Commodities (3 FUNDS)

Commodities are a high-risk and volatile area, but can also deliver high returns and are useful in diversifying a portfolio. The three funds we have included tend to invest in the equities of commodity companies, rather than the assets themselves, so also see our IC Top 50 ETFs if you want more direct exposure.

City Natural Resources High Yield Trust (CYN)

This trust invests in mining and resource company equities, but like many funds in this area has not performed well as these types of shares have not done well, and also because of its weighting to small and mid-cap companies. However, over the past year performance has picked up considerably, both because the fortunes of mining companies have improved and also because this trust has new lead managers who are employing a new investment strategy.

Changes include increased exposure to gold, nickel and zinc, and greater concentration on its top 20 holdings. Winterflood believes the trust is well positioned to capture any further recovery in the resources sector.

The trust also offers an attractive yield of nearly 5 per cent.

BlackRock Commodities Income Investment Trust (BRCI)

This investment trust has an annual dividend target, and aims for long-term capital growth by investing primarily in the securities of mining and energy companies. Its total returns have picked up over the last year and it offers an attractive yield of more than 6 per cent.

“While the yield will almost certainly fall over the next year, BlackRock Commodities Income still seems an attractive way of getting exposure to commodities,” says David Liddell.

Smith & Williamson Global Gold & Resources (GB00B3RJHY30)

This fund invests mainly in gold mining company shares, as well as precious metal and resources companies, with a long-term growth objective of capital growth. It is one of the better performing open-ended funds focused on this area.

“This is one of my preferred gold equity funds and it also tends to invest more in silver than its competitors,” says Darius McDermott. “This should make it more volatile, especially as it invests further down the market-cap scale, but the opposite has been the case. It’s a very small and flexible fund.”

Smith & Williamson Global Gold & Resources also has a low ongoing charge of 0.72 per cent.

Global growth (9 funds)

A global equity fund should be at the heart of pretty much every investor’s portfolio, whether the core of a larger portfolio that also includes more specialist funds to diversify and seek further returns, or the entire equity allocation of small and start-up portfolios. We have a varied selection of nine funds, at least one of which should cover the different risk appetites and needs of a variety of investors.

Changes to the selection: We have dropped British Empire Trust (BTEM) because after performing well over the past decade it has underperformed its sector peers and broad indices such as FTSE World ex UK for a number of years. The trust appointed a new lead manager at the end of last year and says that it has been underperforming because of its value style. However there is no certainty that performance will pick up and there are many other global funds that make strong returns to reallocate to. An activist investor has also taken a substantial stake and it is unclear what it will do. If there is considerable discount tightening due to the activist investor’s actions, meaning you could exit at a profit, it could be a good time to leave.

We dropped F&C Managed Portfolio Growth (FMPG), a fund of investment trusts, because Witan, which is performing better and slight cheaper, offers a diverse manager approach. We also have the income version of this fund in the list.

Scottish Mortgage Investment Trust (SMT)

With some of the best global fund returns, very low charges, large and liquid with experienced managers – probably our easiest keep! The investment trust reviewers on our panel generally agreed too. “This is a well-loved investment trust, with good reason,” says Ben Seager-Scott. “It has a long history of providing solid returns from a globally diversified portfolio.”

Although high-return, the trust is also higher-risk as it has been volatile – and this could be exacerbated by its increasing exposure to unquoted companies, although these could also boost returns. You need a long-term time horizon and higher risk appetite to invest in this trust.

F&C Global Smaller Companies Investment Trust (FCS)

F&C Global Smaller Companies is a good way for a small portfolio to get access to a basket of riskier overseas smaller companies in one holding. The trust has not performed as well recently, but has strong five-year returns, and it is over the long term that you should invest in smaller companies.

It is the largest of the global smaller companies investment trusts with assets of over £600m and has recently removed its performance fee, although already had a reasonable ongoing charge of 0.75 per cent.

It is different to other global funds in that it focuses on smaller companies, so could be held alongside a mainstream global fund.

Unicorn Mastertrust (GB0031218018)

Unicorn Mastertrust, a fund of investment trusts, has delivered good long-term returns. It has a relatively low ongoing charge for a fund of funds of 0.87 per cent and invests across a range of assets and geographies, so could be a good core growth holding for a small portfolio. It also provides exposure to funds focused on higher-risk areas such as private equity and technology, which you might not want to hold directly in a small portfolio.

Lindsell Train Global Equity (IE00BJSPMJ28)

Lindsell Train Global Equity is among the top-performing Global sector funds in terms of performance over three and five years. It achieves this through its concentrated portfolio, which ranges between 20 and 35 stocks. It is also helped by its low turnover, which means trading costs eat less into returns.

The trust is run by renowned manager Nick Train, alongside Michael Lindsell and James Bullock, who aim to construct a portfolio of what they consider to be exceptional companies, with a focus on those with sustainable business models and/or established resonant brands. They also like companies to demonstrate long-term durability in cash and profit generation.

“Nick Train takes a multi-decade view of investing, looking for companies with strong brands and repeatable earnings potential,” says Adrian Lowcock. “Performance in these types of companies has been impressive, but while they may no longer be cheap it is better to buy a good company at a full price rather than a fair company at a fair price.”

The fund also has a very low ongoing charge of 0.57 per cent.

Rathbone Global Opportunities (GB00B7FQLN12)

Rathbone Global Opportunities has delivered good long-term returns by looking to invest in innovative companies, and identify and invest in global themes early. Manager James Thomson has a contrarian investment philosophy and targets undiscovered, out-of-favour growth companies. He likes simple, scaleable businesses with entrepreneurial and flexible management teams.

Although the fund is flexible on company size, sector and geography, Mr Thomson favours midsized growth companies in developed markets and avoids direct holdings in emerging markets. The fund also has a core defensive bucket of reliable growth stocks, which has helped reduce its volatility.

“A truly active unconstrained growth fund run by a longstanding experienced manager,” say analysts at Fund Calibre. “James’ high-conviction contrarian strategy has proved itself over many years.”

Fundsmith Equity (GB00B41YBW71)

Fundsmith Equity is the top-performing Global sector fund over three and five years and achieves its returns via stringent investment criteria and a long-term focus. It targets companies that are resilient to change, with attributes such as the ability to sustain a high return on operating capital, advantages which are difficult to replicate, no need for significant leverage and certainty of growth from reinvestment of cash flows at high rates of return.

The fund’s manager, Terry Smith, also focuses on what he considers to be attractive valuations and runs a concentrated portfolio of between 20 and 30 shares.

“This fund takes a simple, but not unique approach to investing: buy a great business at a reasonable price and then do nothing,” says Adrian Lowcock. “Terry Smith didn’t invent this approach, but he has been excellent at executing it.”

Law Debenture Corporation (LWDB)

This investment trust has delivered strong long-term returns via its portfolio of equities and investment trusts, and is differentiated from other global trusts in that it is a provider of independent third-party fiduciary services, including corporate trusts, pension trusts and governance services. It is run by James Henderson, who has made impressive returns with a number of his funds over the years.

“Law Debenture is attractive due to the investment manager’s strong long-term track record, low cost (with an ongoing charge of 0.45 per cent) and relatively high yield of around 3 per cent, which is boosted by profits from fiduciary services,” comment analysts at Numis. “And no management or finance costs are charged to capital. Its move earlier this year to provide a valuation of the NAV of the fiduciary business was positive, as it makes the discount more comparable with peers’.”

But Law Debenture’s returns are fairly volatile and can have sharp falls over shorter time periods, and although categorised as a global trust it has the majority of its assets listed in the UK.

Witan Investment Trust (WTAN)

Witan does not invest directly in securities but rather outsources most of its assets to 11 external managers in different global regions, some of whom are not available to private investors in the UK. The different philosophies and processes of the underlying managers give the trust’s shareholders a diversified global equity exposure.

This multi-manager fund has made good returns since current chief executive officer Andrew Bell took over in 2010. It could make a good core holding, with its diversity particularly useful for small portfolios that cannot invest in a wide range of funds.

NEW ENTRANT: Monks Investment Trust

Monks Investment Trust had underperformed its benchmark FTSE World Index and the Association of Investment Companies (AIC) Global sector average for a number of years. But last year it appointed new managers who have implemented a new investment process that has delivered very strong returns for another fund they run, Baillie Gifford Global Alpha Growth Fund (GB00B61DJ021). Monks’ performance has started to improve, and if it emulates the performance of this fund, shareholders could benefit from some very strong returns in the years ahead. At time of writing it was still trading at a wider discount to NAV than its sector peers, but this could tighten if performance continues to improve.

Emma Bird at Winterflood says: “We believe this trust can outperform over the longer term through the team’s stock-picking experience and the approach’s aim to capture the asymmetry of potential returns. Although the fund differs considerably from its benchmark, with an active share of 93 per cent, we would expect it to be less volatile than its (Baillie Gifford) stable mate, Scottish Mortgage, as it is more diversified in terms of both number and type of stocks.”

Monks also benefits from a very low ongoing charge of 0.59 per cent.

Morningstar as at 31 August 2016

*AIC using Morningstar

**Performance is of an older share class with a longer track record rather than the one indicated in the text

UK EQUITY GROWTH (6 FUNDS)

Following the vote to leave the European Union in June the UK faces an uncertain future. However, stocks do not necessarily follow the fate of the country they are listed in and, regardless of what happens next, there are still many good companies listed in London. Investing in the home market also eliminates some of the currency risk for the end investor, an issue highlighted by the recent extreme swings in the value of sterling.

But with likely volatility ahead it is important to pick the right shares, so investing in a good UK fund with a good manager is more important than ever.

Changes to the selection: We have removed Aberforth UK Small Companies (GB0000072727) because it has largely lagged its peers, although it has had some better years. Darius McDermott says that there are lots of better smaller companies alternatives, so it does not seem worth persisting with this one.

We have removed Eden Tree UK Equity Growth (GB0008446063) because recent performance has not been good and Andrew Jackson, the manager who ran it successfully for many years, left last year.

Liontrust Special Situations (GB00B57H4F11)

Liontrust Special Situations has delivered excellent returns over the years, placing it among the top-performing UK All Companies sector funds over one, three and five years. It can invest in any stocks in the FTSE All-Share Index regardless of size or sector, enabling its managers, Anthony Cross and Julian Fosh, to find the best opportunities across the market.

The fund’s managers like to invest in companies with a durable competitive advantage that allows them to defy industry competition and sustain a higher-than-average level of profitability for longer than expected.

“Strong stock-picking skills have given these managers an enviable track record of adding value for investors through a concentrated portfolio of UK stocks,” says Ben Seager-Scott. “This is a good UK equity option as a core part of a diversified investment portfolio.”

CFP SDL UK Buffettology (GB00BKJ9C676)

This is a consistent top-performer among UK All Companies funds. Its manager, Keith Ashworth Lord, aims to replicate the investment philosophy of highly regarded US investor Warren Buffett, with a focus on what he considers to be excellent businesses for an excellent price. He also looks to keep portfolio turnover down, so trading costs eat less into returns, and has a concentrated portfolio. The downside to this fund is that it has a high ongoing charge of 1.63 per cent, but its strong returns compensate investors well for this.

Old Mutual UK Mid Cap (GB00B1XG9482)

This fund has delivered some of the strongest returns among all UK growth funds over longer periods and is one of the best mid-cap funds.

“This is a pure growth fund with a core focus on FTSE 250 and does not stray into smaller companies like some of its peers,” says Adrian Lowcock. “The fund has suffered in 2016 due to a consumer focus and the Brexit vote, but its manager Richard Watts, who remains optimistic on the UK economy, is a very experienced and skilled stock picker and I believe he will bounce back.

Henderson Smaller Companies Investment Trust (HSL)

This investment trust has outperformed its benchmark, Numis Smaller Companies ex Investment Companies, in 12 of the past 13 years.

“Henderson Smaller Companies, which has a market cap of over £450m, is one of the largest, most liquid UK smaller company trusts,” says Ewan Lovett-Turner. “It is an attractive core holding for investors seeking exposure to this asset class. While it has been a difficult period for performance in recent months due to the Brexit vote, manager Neil Hermon has a strong long-term track record, with NAV total returns over the past 10 years of 195 per cent versus 147 per cent for the Numis Smaller Companies ex Investment Companies Index.”

Despite its name, Henderson Smaller Companies typically invests a significant portion of its assets in the FTSE 250. Its manager favours mid-caps for liquidity reasons, and because he thinks they are typically higher quality than smaller companies, with their superior performance driven by earnings growth.

BlackRock Smaller Companies Trust (BRSC)

BlackRock Smaller Companies Trust has made strong returns over the long term and is one of the better performers among closed-ended smaller companies investment trusts. Every company included in its portfolio must have a successful management team, a strong balance sheet, reliable revenue growth, a competitive market position and an ability to return cash to shareholders. Its managers also believe that prudent risk management, including a focus on diversity and liquidity, is a key part of delivering good risk-adjusted returns over time. This is a particularly important attribute when investing in smaller companies, which can be higher-risk and volatile.

“Discount widening in the year to date reflects uncertainty over the asset class, but the manager, Mike Prentis, has performed well for investors and we see no reason why this should not continue,” says Stephen Peters.

Marlborough UK Micro Cap Growth (GB00B8F8YX59)

This fund has delivered strong performance and invests in very small companies rather than the FTSE 250. It invests primarily in UK companies with a market capitalisation of £250m or less at the time of purchase, and 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.

Marlborough UK Micro Cap Growth aims for a total return of capital and income in excess of the FTSE Small Cap Index (excluding investment companies) over the medium to long term, and is managed by Giles Hargreave, a very experienced smaller companies investor.

“Giles Hargeave has an excellent track record when it comes to picking smaller companies,” says Adrian Lowcock. “He runs a broad fund of around 200 stocks taking small positions in each, and is quick to sell disappointing investments. Stock selection is combined with excellent portfolio management skills. But the fund includes Aim shares so will be volatile and offer little protection in falling markets.”

Source: Morningstar as at 31 August 2016

*AIC using Morningstar

EUROPE (4 FUNDS)

Europe has been an area where UK investors have been underinvested over the years, with concerns heightened more recently due to the region’s sovereign debt problems. But with a European equities fund you invest in companies not countries, and some of the world’s leading companies are listed on markets in this region, while some of the best fund managers run European funds.

Changes to the selection: We have dropped Jupiter European Opportunities Trust (JEO) because it has an excessive ongoing charge and investors can access its manager, Alex Darwall, via a cheaper fund.

We have also dropped Fidelity European Values (FEV) because its performance is not as strong as a number of other European funds – you can do better and for a lower charge.

Henderson European Focus (GB00B54J0L85)

Henderson European Focus has made strong returns under the management of John Bennett, who has run the fund since 2010 and has managed European equities for 28 years. Mr Bennett screens for attractively valued stocks, and then looks for a catalyst that will drive growth and a re-rating of the stock through careful business analysis. He then holds them for long periods, which allows them to appreciate. He favours companies with strong balance sheets and consistent earnings growth and trading on attractive valuations.

“This fund has a concentrated portfolio (of 51 stocks) with a philosophy of investing for change,” says Adrian Lowcock. “John Bennett is an experienced hand and takes a long-term contrarian view.”

NEW ENTRANT: Jupiter European (GB00B5STJW84)

Manager Alex Darwall has an outstanding performance record and his Jupiter European Opportunities Trust (JEO) has made excellent returns over the years. However, JEO has an excessive ongoing charge of 3.92 per cent, due to its performance fee, which is based on a benchmark – FTSE World Europe Ex-UK Index – that doesn’t reflect the trust’s allocation of 25 per cent of assets to the UK.

But investors who don’t want to pay this exorbitant fee do not need to forego Alex Darwall’s excellent stock-picking skills. He also runs Jupiter European Fund, which has a much more reasonable ongoing charge of 1.03 per cent. The fund has also made outstanding returns, easily outstripping FTSE World Europe Ex-UK Index over one, three and five years, placing it among the top three European open-ended funds in terms of performance over three and five years.

It also only has 5 per cent of its assets in the UK, so there is less chance of overlap with your UK holdings, and this may be a good thing in view of the UK’s uncertain future following the vote to leave the EU.

NEW ENTRANT: FP CRUX European Special Situations (GB00BTJRQ064)

Ben Yearsley suggested adding this fund because “quite simply [its manager] Richard Pease is one of the best long-term European equity managers.” And the numbers have certainly borne this out, with the fund among the top five Europe ex UK sector open-ended funds over one, three and five years.

The fund’s aim is to capture growth while protecting the portfolio from potential downside. Mr Pease and co-manager James Milne seek companies that have identifiable business strategies, sound finances, strong free cash flow, higher than usual dividend yields, quality management and attractive valuations. The fund has a reasonable ongoing charge of 0.83 per cent.

Baring Europe Select (GB00B7NB1W76)

This fund has consistently delivered strong returns, beating most Europe funds over one, three and five years, as well as its benchmark, the Euromoney Smaller European Companies ex UK Index.

The fund invests in small and mid-cap companies, typically with a market cap of between €250m and €5bn, with strong balance sheets, low debt to equity, relatively stable earnings history and high return on equity. It invests via a growth at reasonable price basis, with manager Nicholas Williams looking to buy growth stocks at the right time. This means that the fund will tend to underperform in momentum markets, and its focus on smaller companies means that it could be more volatile than mainstream large-cap-focused funds.

But analysts at Fund Calibre add: “Historically, with its quality focus and combination of growth and value disciplines, this fund has lower volatility than most mid and small-cap funds. Nicholas Williams manages risk primarily through stock selection and will allocate less to very volatile stocks.”

So this fund, which has a reasonable charge of 0.81 per cent, is more suitable for investors with a long-term time horizon and higher risk appetite.

 Source: Morningstar as at the 31 August 2016

Japan (5 FUNDS)

UK investors have been wary about investing in Japan after experiencing years of poor returns in the last century. But the world has changed and good Japanese companies and funds have been making strong returns for years, while sentiment towards Japan has improved significantly as the government has taken steps to boost economic growth, increase inflation and weaken the yen. So a good Japan fund should be a useful addition in balancing many investors’ portfolios.

Changes to the selection: We have switched Baillie Gifford Shin Nippon (BGS) for Baillie Gifford Japanese Smaller Companies because this is a much cheaper way to access this team’s excellent stock-picking skills.

Baillie Gifford Japan Trust (BGFD)

Baillie Gifford Japan Trust is the top-performing mainstream Japan investment trust over one, three and five years, over which time frames it also beats the Topix Index – and by quite some margin over longer time frames. Manager Sarah Whitley targets medium- to smaller-sized Japanese companies that she thinks have above-average prospects for growth, although also invests in large-caps when she thinks it is appropriate. She looks to identify individual companies offering long-term growth potential, typically over a three- to five-year horizon.

“This trust is a long-term winner, credit to Sarah Whitley for her length of service in the Japanese market,” says Stephen Peters. “This is one of the best ways of getting access to the Japanese equity market across both the open and closed-end fund sectors.”

The trust has also recently revised its fee from 0.95 per cent on the first £50m of net assets and 0.65 per cent on the remainder, to 0.95 per cent on the first £50m of net assets, 0.65 per cent on the next £200m of net assets and 0.55 per cent on the remainder. This means the trust’s ongoing charge of 0.91 per cent could fall, as it has assets of around £415m.

Man GLG Japan CoreAlpha (GB00B0119B50)

This fund invests in large-cap Japanese companies with a focus on value, and manager Stephen Harker has a distinctive contrarian investment style that favours out-of-favour value stocks. It has not done well over the past few years, but this is because of its investment style, so a number of panel members suggest sticking with it. “This fund has had a bad few years because its investment style has been very much out of favour,” says Darius McDermott. “But when value comes back in it should do well.”

Adrian Lowcock adds: “Stephen Harker is a large-cap value manager and as such has suffered because this area has been out of favour in Japan, with value lagging the market and smaller caps outperforming their large-cap peers. Valuations on a price-to-book measure, which Stephen uses, are at their most stretched and he expects them to rebound. But they may continue to struggle in the short term.”

Schroder Tokyo (GB00BGP6BR86)

This fund selects its investments based primarily on Japan’s economic strengths, such as its manufacturing industry, in particular the parts of it that are demonstrating an ability to exploit newly emerging technology. It also looks to sectors benefiting from structural change in the economy.

Its performance has not been as strong recently because of its investment style. “Schroder Tokyo has a value tilt, which harmed performance as the fund held financials which lagged in 2015,” says Adrian Lowcock. “But manager Andrew Rose is very experienced and expects valuations to swing back in due course. This fund also has a bias towards mid- and smaller-sized companies.”

Darius McDermott agrees that this fund is worth holding. “Schroder Tokyo has an experienced and well-resourced team, together with a robust process and an excellent track record, providing the perfect ingredients for a core Japanese fund.

NEW ENTRANT: Legg Mason IF Japan Equity (GB00B8JYLC77)

Legg Mason IF Japan Equity has delivered excellent returns over the years and is the top-performing Japan fund over one, three and five years. The fund’s manager, Hideo Shiozumi, has more than 40 years’ experience of Japan equities and when seeking portfolio holdings looks to exploit structural changes in Japan. The fund’s investment process involves identifying high-growth companies by looking for ones with annual earnings growth in excess of 20 per cent, but which Mr Shiozumi thinks are attractively valued.

The downside to this fund, which has a small- and mid-cap bias, is that it is highly volatile and can go through relatively long periods of underperformance. This means it is only suitable for investors with long-term investment horizon and high risk appetite. But it has reaped rewards for those able to sit out the more difficult times.

NEW ENTRANT: Baillie Gifford Japanese Smaller Companies (GB0006014921)

Baillie Gifford Shin Nippon (BGS) investment trust has delivered very strong returns over the years, but at the end of last year its lead manager, John MacDougall, left and the fund is now run by Praveen Kumar. While this brings some uncertainty, Baillie Gifford has emphasised that its funds are run via a team approach, and this Japan team has delivered some excellent returns over the years.

However, a better way to access their stock-picking skills might be the open-ended smaller companies fund they run, Baillie Gifford Japanese Smaller Companies. This has a much lower ongoing charge of 0.63 per cent, against 1.02 per cent for the investment trust. This fund has also delivered leading returns over the years, putting it ahead of all its open-ended Japanese smaller company peers over longer time periods.

ASIA ex JAPAN (8 FUNDS)

Asia has some of the most dynamic economies and arguably the most growth potential of all geographic regions. It includes China and India, the countries with the world’s largest populations, and where growing affluence is driving many areas, such as consumer and financial services. While economic growth is not always reflected in markets, the stock markets in this part of the world are growing and becoming more accessible to foreign investors. They include some high-growth and high-quality companies, which good investment teams should be able to seek out.

Asian equities are a higher risk area that includes a number of emerging markets and can be highly volatile, so you should have a long-term time horizon and higher risk appetite if you invest in this area – especially single-country emerging markets funds.

Changes to the selection: We have removed Edinburgh Dragon Trust (EFM) because it has underperformed for a number of years, and you can do better in Asia with other funds, many of which have a lower ongoing charge than 1.15 per cent. We also still include three other Aberdeen-run Asian funds in the IC Top 100 Funds.

Stewart Investors Asia Pacific Leaders (GB0033874768)

Stewart Investors Asia Pacific Leaders has been one of the best-performing Asia ex Japan funds over longer periods, but earlier this year lead manager Angus Tulloch stepped down and the fund is now run by David Gait and Sashi Reddy. However, Mr Gait had a strong record before he assumed management of this fund, in particular with Pacific Assets Trust (see below), and Stewart Investors also tends to manage its funds via a team approach, so the departure of one manager shouldn’t mean substantial change.

A number of panelists favoured keeping this in the selection despite the manager change.

“This fund is run by one of the most respected teams in the Asia Pacific region, so despite the recent changes their long-term and conservative approach makes them a worthy stalwart of many a portfolio,” says Ben Seager-Scott.

“David Gait has built up a strong track record managing Asian equities,” adds Gavin Haynes. “The fund style and process will remain the same, which is driven on a pure stock-picking basis, with little regard paid to sector/country benchmarks.”

Pacific Assets Trust (PAC)

Pacific Assets Trust is the best-performing Asia ex-Japan investment trust over three and five years, and over the past five years its NAV has increased three times more than MSCI AC Asia ex-Japan Index and almost two times over the past three years, according to analysts at Winterflood. It has lagged over shorter-term periods because its focus on quality means it can get left behind in fast-rising markets.

Mr Gait, who has run the trust since 2010, selects stocks according to their own merits rather than sector or geographical considerations, with a focus on quality, sustainable and predictable growth, and valuation.

“This trust combines the traditional conservative approach of Stewart Investors with a sustainability and responsible investment theme,” says Ben Seager-Scott. “It is an effective and compelling investment case that combines the idea of sustainability not just in terms of social and environmental impact, but also the long-term sustainability of a business model – and hence investment returns.”

NEW ENTRANT: Invesco Asia Trust (IAT)

Invesco Asia is one of the best-performing Asia ex Japan investment trusts over one, three and five years. Its manager, Ian Hargreaves, invests via a top-down macro overlay approach, which is different from the approach used by other Asian investment trusts, which tend to pick stocks according to their individual merits.

“Asia is a diverse region and we believe such a philosophy assists the manager in taking a pragmatic view on the valuations of the different economies and sectors, and to position the portfolio accordingly,” say analysts at Stifel.

Mr Hargreaves also favours companies whose share prices are substantially below his estimate of fair value, particularly those with competitive advantages and balance sheet strength. The trust has a discount control policy and uses share buy-backs and tender offers if it hits a discount to NAV of 10 per cent or beyond.

NEW ENTRANT: Schroder Asia Pacific Fund (SDP)

Schroder Asia Pacific is one of the better performing Asian investment trusts and is run by Matthew Dobbs, a highly experienced Asian equities manager who also runs Schroder Oriental Income (see above).

Schroder Asia Pacific aims to exploit the domestic growth story in Asia, and Mr Dobbs selects holdings according to their individual merits, rather than according to sector or geographical considerations. He favours quality companies with strong balance sheets and sustainable earnings.

“Schroder Asia Pacific has delivered NAV returns of 186 per cent over the past decade, compared with 134 per cent for MSCI AC Asia ex Japan Index,” says Ewan Lovett-Turner. “It has consistently achieved top-quartile performance versus both open and closed-ended funds, and is our core recommendation in the Asia Pacific ex Japan sector.”

NEW ENTRANT: Asian Total Return Investment Company (ATR)

Asian equity funds are a way to exploit this region’s long-term growth story, but if you don’t have a high risk appetite, they are not such an attractive prospect. However one way to invest with less volatility could be through Asian Total Return Investment Company, with three panellists recommending adding it to the list.

As well as looking to invest in the shares its managers believe are attractive, this trust aims for capital preservation via derivatives, for example selling index futures or buying index puts.

“This investment trust is managed in a similar fashion to the highly successful Schroder ISF Asian Total Return Fund (LU0378801590), which is now closed to new investments, making this one of the few ways to access the strategy,” says Ben Seager-Scott. “It is managed by Robin Parbrook and Lee King Fuei, who are among the very best managers in the region. Their strategy involves picking good stocks but also uses a range of defensive tools to mitigate some of the downside risks if they believe broad markets are challenged, and they think this can be done in a cost-effective fashion.”

David Liddell adds: “Since Schroders took this trust over in March 2013 the performance has improved and the use of hedging gives it an interesting tilt.

Its ongoing charge of 0.99 per cent is also reasonable for a fund with a specialist mandate such as this.

NEW ENTRANT: Aberdeen Asian Smaller Companies Investment Trust (AAS)

This investment trust has had a difficult time in terms of performance over the past few years, but historically Aberdeen has had a strong Asia team and delivered very strong returns. Smaller companies can have volatile periods, so you should hold them for the long term, over which time hopefully Aberdeen will return to form.

“Investment trusts should be used for investing in asset classes not suited to open-ended funds, and we think this trust, which is focused on less liquid smaller companies, is an excellent example,” says Stephen Peters. “While it has lagged in recent years, long-term owners should be rewarded.”

Fidelity China Special Situations (FCSS)

This investment trust has performed very strongly against its benchmark, MSCI China, and outperformed most other open-ended and closed-ended China funds over one, three and five years. Manager Dale Nicholls has only been in place for two years, but has delivered good returns in this time.

The trust invests in both China mainland shares and areas such as Hong Kong, and has about two-thirds of its assets in consumer discretionary and IT shares. It also makes use of derivatives and has a reasonably high level of gearing (debt), which together with the fact that it is an emerging markets single-country fund, make it a very high-risk option. Another downside is its high ongoing charge of 2.27 per cent, however it is pretty much the best-performing China fund.

New India Investment Trust (NII)

New India beats MSCI India index in NAV terms over one, three and five years, although its share price does not keep up over shorter periods meaning it is trading at a discount to NAV. It also beats its closed-ended India peers over longer periods.

The trust’s managers at Aberdeen Asset Management invest in companies they think offer good value, and estimate a company’s worth by assessing quality and price. They define a company’s quality with reference to its management, business focus, balance sheet and corporate governance record.

They favour consumer stocks and the portfolio has substantial exposure to private sector banks, which they think will benefit over the long term from the expansion in the wealth of the middle class. The trust also has a very competitive ongoing charge of 0.46 per cent, much lower than those of its closed-ended peers.

Source: Morningstar as at 31 August 2016

*AIC using Morningstar except Stewart Investors Asia Pacific Leaders

North America (2 FUNDS)

Active funds have struggled over the years to beat large mainstream US indices such as the S&P 500, and in most cases investors are better using a passive fund such as an exchange traded fund (ETF). We have seven suggestions for US exposure in our top 50 ETFs. However, there are cases where managers do outperform, in particular if they are focused away from mainstream US equities. We have found two examples.

Fidelity American Special Situations (GB00B89ST706)

Fidelity American Special Situations has succeeded in beating the S&P 500 over three years and since its inception in October 2012 by a good margin.

Manager Angel Agudo invests in companies that are undervalued, either because they are out of favour or little value is given to their recovery potential. He also takes the potential downside risk of a company into account, favouring strong balance sheets or resilient business models. He runs a relatively concentrated portfolio with a low level of turnover and clear value characteristics.

“This manager is supported by one of the largest US equity teams in London,” says Darius McDermott. “He invests in companies at different stages of turnaround, so even though it is a value fund, it has the potential to outperform through different macroeconomic environments.”

JPMorgan US Smaller Companies Investment Trust (JUSC)

This investment trust has beaten its benchmark, the Russell 2000 Index, over one, three and five years in terms of its NAV returns. Its share price has not kept up over shorter time frames, but this means investors could pick this trust up at a wide discount to NAV, which could tighten if the good performance is recognised.

“Despite its strong performance, the discount has widened significantly, after having traded at close to NAV at the start of 2016,” says Ewan Lovett-Turner. This is an attractive entry point, and its board has demonstrated a willingness to buy back shares to protect a single-figure discount.

“Over the past five years, the trust has delivered a NAV total return of 95.6 per cent, compared with 65.9 per cent for the Russell 2000 Index. It has a strong track record through a stock-picking approach focused on quality growth companies trading at reasonable valuations. It invests in a large universe of over 2,000 stocks with market caps ranging between $350m and $10bn.”

This trust looks to invest in US smaller companies that have a sustainable competitive advantage, and focuses on owning equity stakes in businesses that trade at a discount to their intrinsic value, with strong management teams. JPMorgan US Smaller Companies cut its management fee to a flat rate of 1 per cent of gross assets with effect from 1 January 2016, down from 1.2 per cent on assets under £100m, so its ongoing charge of 1.69 per cent could fall.

Source: Morningstar as at 31 August 2016

*AIC using Morningstar

EMERGING AND FRONTIER MARKETS (6 FUNDS)

Perhaps the most important area for long-term growth investors is emerging markets, because populations and wealth in these parts of the world are growing as the countries, economies and markets in these regions develop. These markets are also less researched than developed markets so should give good active managers more opportunities to find good companies.

But along with growth potential comes a lot of risk, as these areas are less politically stable and have lower levels of corporate governance than developed economies. So funds focused on these areas are better suited to investors with long-term time horizons and high risk appetites.

Changes to the selection: We have dropped Lazard Emerging Markets Fund (GB00B24F1G74) as it has not been performing well and there are many other better performing options. We have also dropped Fidelity Emerging Europe, Middle East and Africa (GB00B87Z7808) because it doesn’t give exposure to the full range of frontier markets, and its returns are not as strong as BlackRock Frontiers Investment Trust.

NEW ENTRANT: Newton Global Emerging Markets (GB00BVRZK937)

Newton Global Emerging Markets is among the top-performing open-ended Global Emerging Markets funds over one, three and five years. It is only £73m in size and its manager, Rob Marshall-Lee, who heads up Newton’s Asian and emerging markets team, takes high-conviction bets, switching between areas he thinks will outperform. Although this makes the fund high-risk its strong returns justify the approach.

Mr Marshall-Lee and his team also follow a distinct global thematic investment approach and conduct extensive proprietary research.

“This growth-style fund also has a pronounced quality bias, which should help in challenging markets,” comment analysts at Tilney Bestinvest. “Although the manager’s track record only extends a few years, his stock-picking abilities are underpinned by a consistent team effort. We believe the manager is capable of adding value over the investment cycle, providing investors with robust risk-adjusted returns.”

NEW ENTRANT: Fidelity Emerging Markets (GB00B9SMK778)

This fund, which is among the top performers in this sector over three and five years, makes a good core emerging markets holding, says Ben Yearsley.

Ben Seager-Scott adds: “This fund has a strong manager in Nick Price, who is supported by a well-resourced team. He looks for companies with strong market positions and competitive advantages that can grow over the long term. The manager has an excellent track record, with a growth bias.”

Mr Price favours companies that deliver superior returns on their assets and have well-capitalised balance sheets, because he thinks such companies are usually more able to fund internal growth without diluting existing shareholder earnings through issuing new shares. The fund has about a fifth of its assets in South Africa, as well as significant allocations to China and India.

NEW ENTRANT: Templeton Emerging Markets Investment Trust (TEM)

Templeton Emerging Markets Investment Trust had underperformed for a number of years, but in October 2015 a new manager, Carlos Hardenberg, took over. He has made a number of changes to the portfolio and the trust has achieved a significant uptick in performance in the time that he has run it. He has lowered the risk of the portfolio, reduced concentration in individual shares and sectors, and invested in a wider range of countries.

Despite this, the trust still trades at a discount to NAV (of around 11 per cent at time of writing). However analysts at Winterflood say: “Its buy-back programme remains highly active, but the trust has been hit again this year by continued negative sentiment towards emerging markets as a result of fears over China’s economic prospects and weak earnings growth. It is difficult to call when sentiment will turn but we believe that when it does Templeton Emerging Markets will be an obvious beneficiary. In our opinion it is the flagship fund in the sector due to its size, liquidity and profile.

“Given the pick-up in performance under Carlos Hardenberg and its discount of 11 per cent, we believe that it is an interesting turnaround story and, as a consequence, have recently added it to our model portfolio as one of our emerging market recommendations.”

Utilico Emerging Markets (UEM)

This investment trust is one of the best-performing closed-end emerging markets funds and also offers an attractive yield of over 3 per cent. It mainly invests in the shares of infrastructure and utility companies rather than being a broad emerging markets fund.

Its managers look to minimise risk by focusing on companies and sectors that display the characteristics of essential services or monopolies such as utilities, transportation infrastructure and communications, or companies with a unique product or market position.

It has about a fifth of its assets in each of electricity and gas-related companies, as well as significant exposure to ports, airports, and water and waste.

Nearly a quarter of its assets are listed in China and Hong Kong, and it also has significant allocations to Brazil and Malaysia.

NEW ENTRANT: Aberdeen Latin American Equity (GB00B4R0SD95)

Latin America has not done well over the past few years, but with governments in the region determined to improve the economic situation and valuations of shares relatively low, this region and its markets could have better prospects going ahead.

Aberdeen Latin American Equity Fund has been one of the better performers in this area and has outperformed its benchmark, MSCI EM Latin America 10/40 Index, over one, three and five years.

“The fund is managed by Aberdeen’s world renowned emerging markets team, whose primary investment concern is quality, followed by value,” comment analysts at FundCalibre. “The strategy has had considerable success across a range of emerging markets and historically has performed well in tough markets.”

The fund’s managers aim to build large positions in high-quality companies that are trading at reasonable valuations. Their average holding period is over five years and the team will look to add to positions during periods of market volatility.

BlackRock Frontiers Investment Trust (BRFI)

Frontier markets are even less developed than emerging markets, and typically have lower market capitalisations and less liquid stock exchanges, making them higher-risk. However, they also have the potential for even higher growth than emerging markets, which have matured significantly over the past decade. But this area is only suitable if you have a very high risk appetite and long-term investment horizon.

BlackRock Frontiers Investment Trust has significantly outperformed MSCI Frontier Markets Index over one, three and five years. Emma Bird says: “This trust has performed well since its launch in 2010 and we rate the trust’s managers, Sam Vecht and Emily Fletcher, highly. The trust has also exhibited surprisingly little volatility since launch. We believe there is little discount risk due to the discount control mechanism of an option to exit at NAV less costs at five-yearly intervals.”

The trust’s managers focus on cash flows rather than earnings, and seek companies with credible management teams that are able to deliver on objectives. In order to invest in a company they also have to have a positive view on the country. And they take into account the liquidity of the companies and the markets they invest in.

Source: Morningstar as at 31 August 2016

*AIC using Morningstar

PROPERTY (5 FUNDS)

Commercial property has been a useful asset to hold in portfolios both to diversify away from equities and also as a source of income. However, earlier this summer a number of open-ended commercial property funds stopped investors taking out or putting in money after they received a high level of redemption requests, in particular following the vote for Brexit.

Following the Brexit vote there are also concerns about the prospects for UK commercial property, a reason why we have cut the section from seven to five funds, and only include exposure to physical property via closed-end funds. But the main reasons for exposure to property – diversification and income – are still valid.

Changes to the selection: we have removed M&G Property Portfolio because for the time being it is not possible to put money into this fund. We have also dropped Picton Property Income (PCTN) because it has a very high ongoing charge of 2.82 per cent, high gearing (debt) and a substantial portion of its assets in London and south-east of England offices, which could be adversely affected by the Brexit vote.

TR Property Investment Trust (TRY)

TR Property Investment Trust mainly invests in the shares of property companies in Europe and the UK, and also has nearly 9 per cent of its portfolio in physical UK commercial property. The trust has delivered strong total returns, although more recently its share price has lagged its NAV due to poor sentiment towards property.

Although TR Property doesn’t have the highest yield among property investment trusts it increases its dividend most years and paid out 8.35p in its last financial year – an increase of more than 8 per cent on the year before. It has also recently refinanced its debt at a cheaper borrowing rate, cutting its costs.

“TR Property has been a consistent performer throughout many property cycles and has the advantage of having European as well as UK exposure,” says David Liddell.

First State Global Property Securities (GB00B1F76N79)

This fund invests in the shares of property companies rather than actual buildings, so does not face the liquidity problems of funds that invest in the latter. More than half of its assets are listed in the US, with only 10 per cent in the UK, so it helps diversify away from UK commercial property.

“Property securities have done better in 2016 as they haven’t faced the liquidity issues that bricks and mortar bring,” says Adrian Lowcock. “The fund is quite concentrated, with between 35 and 80 names, and invests in the best companies its managers can find irrespective of the benchmark.”

F&C Commercial Property Trust (FCPT)

F&C Commercial Property invests in physical UK commercial property such as offices, warehouses and shop units. Because it is an investment trust it does not face the problems of open-ended funds because its investors cannot take out their money – they have to sell their shares on the secondary market.

This trust offers an attractive yield of around 4.7 per cent and has limited exposure to City of London offices, which could suffer due to the UK’s vote to leave the European Union.

“F&C Commercial Property benefits from a well-regarded and experienced manager and has a very strong performance record,” comment analysts at Winterflood. “Its portfolio has outperformed the UK property market in nine of the 10 full years since the fund’s launch in 2005. This reflects the quality of the portfolio as well as the asset management initiatives undertaken by the fund’s experienced management team, led by Richard Kirby.”

Standard Life Investments Property Income Trust (SLI)

Standard Life Investments Property Income has made good returns and has an attractive yield approaching 6 per cent. It has less than 7 per cent of its assets in London offices, which could suffer due to the UK’s vote to leave the European Union. Nearly a third of its assets are in industrial properties away from the south-east, with around 23 per cent in south-east offices.

Tritax Big Box REIT (BBOX)

Tritax Big Box REIT doesn’t invest in mainstream commercial property but rather buys into large logistics warehouses in the UK, which are benefiting from the increase in online shopping. It lets or pre-lets these warehouses to institutional-grade tenants such as M&S, Ocado, Next and Rolls-Royce. The trust aims to deliver a stable and increasing income and is targeting a dividend of 6.2p for this year, up from 6p the year before. It is aiming for a net shareholder return in excess of 9 per cent over the medium term.

“This is a specialist real-estate investment trust (Reit) which is focused on logistics and distribution centres, providing diversification from more traditional, generalist Reits and an area that could well benefit from retailing shifts away from the high street towards online and home-delivery services,” says Ben Seager-Scott.

This trust trades at a high premium to NAV, so it is probably worth waiting until this drops before you enter.

SPECIALIST EQUITIES (5 FUNDS)

If you have a large portfolio and a higher risk appetite, you could consider adding a small allocation to some specialist equities funds focused on a particular area that could benefit from high growth.

Changes to the selection: We have dropped T Bailey Aptus Global Financials (GB00B796C343) because its performance has not been strong and in view of this its ongoing charge of 1.28 per cent is relatively expensive.

Worldwide Healthcare Trust (WWH)

This investment trust invests across both the healthcare and higher-return, higher-risk biotechnology sector. This means that while it still offers some exposure to high-growth areas it is less risky and potentially less volatile. The trust has beaten MSCI World Health Care Index over longer periods and is managed by OrbiMed Capital, which specialises in this sector. Its managers use fundamental analysis to find undervalued companies with a strong product pipeline, high-quality management teams and a robust financial position.

“We view Worldwide Healthcare as an attractive option for investors looking for a diversified portfolio of innovative healthcare companies,” says Ewan Lovett-Turner. “The fund has an excellent long-term track record through stock-picking based on fundamental research, and is less volatile than most of the listed peer group, which tend to focus exclusively on biotech. The trust’s board protects a 6 per cent discount through buybacks and seeks to issue shares at a small premium to NAV to provide liquidity for investors.”

Biotech Growth Trust (BIOG)

Biotech Growth Trust is focused on listed biotechnology companies and has made very strong returns over the long term, well ahead of the Nasdaq Biotechnology Index. About 90 per cent of its assets are listed in the US and it has 35 holdings, which include both emerging and large-cap biotech companies. It is managed by OrbiMed Capital, which also runs Worldwide Healthcare.

“We view Biotech Growth as an attractive option for investors looking for exposure to the biotech sector,” says Ewan Lovett-Turner. “Sam Isaly is an experienced fund manager and the fund has an excellent long-term track record through stock-picking based on fundamental research. However, the NAV is likely to be volatile given the nature of the sector, the concentration of the portfolio and the manager’s willingness to hold positions through the announcement of clinical trial results.”

The trust aims to keep the discount to NAV at no wider than 6 per cent via share buy-backs.

Polar Capital Technology Trust (PCT)

Technology is a sector under-represented in the UK stock market so it could be worth adding for diversification, as well as the potential for long-term growth. Polar Capital Technology Trust invests in various areas of technology and its main sector exposures are software, and internet software and services, which account for more than half of its assets.

About two-thirds of its investments are listed in North America, with about 14 per cent in Asia ex Japan.

“Polar Capital Technology is an attractive way to gain exposure to a diversified global technology portfolio focused on themes that are driving future growth, rather than on the industry incumbents,” says Ewan Lovett-Turner. “Manager Ben Rogoff remains focused on three core themes of internet infrastructure, broadband applications and mobility, together with other areas such as advertising, cybersecurity, e-commerce, gaming, healthcare and payments.”

Allianz Technology Trust (ATT)

This investment trust has a solid performance record against the Dow Jones World Technology Index since manager Walter Price started running it in 2007, with its NAV up 193 per cent against a rise of 140 per cent for the benchmark. Mr Price has 40 years’ experience of investing in technology, and is based in California where a lot of technology companies are based.

Mr Price tries to identify major growth trends and especially disruptive innovations. The majority of the portfolio is invested in high-growth companies, and there is a bias to mid-caps. Part of the portfolio is also invested in what Mr Price considers to be value stocks – large, established companies where there is a catalyst that could boost growth.

The key themes in the portfolio fall into three broad categories: secular growth, total return and global diversification. Performance has not been so strong recently but analysts at Winterflood say that as the portfolio varies significantly from the index, performance is unlikely to be in line as demonstrated by the very strong performance during 2013. There are also likely to be periods when the trust lags the benchmark due to its bias towards higher-growth companies.

NEW ENTRANT: Jupiter Financial Opportunities (GB00B5LG4657)

Jupiter Financial Opportunities invests in the shares of financial sector companies such as banks and insurance companies, and real-estate-related companies, across various geographies. Over 40 per cent of its assets are in US-listed companies, and about 28 per cent in Europe ex UK. It is run by a very experienced manager, Guy de Blonay, who targets companies he thinks are undervalued and that exhibit favourable growth prospects arising from characteristics such as proven management, or strong products and services. He takes a macro view of the world economy, identifying investment themes such as the growth of emerging economies and then finds stocks positioned to benefit from them.

“Guy de Blonay has a strong track record in the sector from his days at New Star,” say analysts at TilneyBestinvest. “Investors should be aware that future returns from banks are likely to be lower than they were prior to the crisis, although the fund has the flexibility to invest in insurance, property and other financial companies.”

ALTERNATIVE ASSETS (8 FUNDS)

It is important to diversify your portfolio so that if one area goes down, hopefully other parts of your portfolio won’t. Specialist equity funds or funds focused on alternative assets can also boost your returns. However, these areas are typically high-risk so should only account for a small portion of larger portfolios.

Changes to the selection: We have dropped BH Macro (BHMG) because it has not delivered very good cumulative returns, as it has not held up well since 2012. And an ongoing charge of 1.98 per cent seems expensive for something that is not performing well.

We have dropped Catco Reinsurance Opportunities (CAT) because three of our panellists said this is a very niche area that isn’t relevant to most portfolios, and there are probably better and cheaper ways to diversify – this investment trust has an ongoing charge of 1.68 per cent.

HICL Infrastructure (HICL)

HICL is one of the one of the longest established and the largest of the listed infrastructure investment trusts, and mainly invests in UK Private Finance Initiative (PFI) and Public Private Partnership (PPP) schemes.

It aims for predictable and sustainable dividends derived from the stable, inflation-correlated cash flows of its underlying investments, which are typically government-related. The portfolio includes more than 100 investments in areas such as education, health and transport. It has made total returns well ahead of the FTSE All-Share over longer periods, and offers an attractive yield of over 4 per cent. However, it consistently trades at a double-digit premium to NAV, so is only one to add if you can get in at a lower rating, for example via a C share issue.

First State Global Listed Infrastructure (GB00B24HK556)

Unlike its closed-end infrastructure peers, this fund invests in the securities of infrastructure companies and because it is open-ended it is not trading on an excessive premium to NAV. The fund has delivered total returns beating many broader global equities funds and has a lower ongoing charge of 0.83 per cent.

It does not offer such an attractive yield, though, and is likely to move more in line with equity markets because its underlying holdings are listed.

Gavin Haynes favoured keeping First State Global Listed Infrastructure in the list, along with Darius McDermott who says: “This fund is a pioneer in this asset class and has captured the attention of income-seeking investors looking to diversify their holdings. It’s a really good, consistent fund in this space.”

NEW ENTRANT: The Renewables Infrastructure Group (TRIG)

Unlike the broad infrastructure investment trusts, renewable energy infrastructure investment trusts are mostly trading at single-digit premiums to NAV and offer even more attractive yields. These tend to invest in wind farms and/or solar parks, and make their returns through a mixture of government subsidies and power generation.

This is a relatively young sector, but the oldest established trust, The Renewables Infrastructure Group, is run by the same management group as HICL – InfraRed Capital partners – which has been managing infrastructure investments for 18 years.

This investment trust invests in more than 50 onshore wind farms and solar parks, mainly in the UK, and offers an attractive yield of nearly 6 per cent.

It also has a lower ongoing charge than some of its peers, at 1.19 per cent.

NEW ENTRANT: Foresight Solar Fund (FSFL)

Foresight Solar Fund trades on a lower premium to NAV than many of its peers (at time of writing) and offers an attractive yield of nearly 6 per cent. Solar investments are generally less variable than wind investments so the returns are likely to be more stable.

Ben Yearsley says it “pays a healthy inflation-linked income stream”.

Standard Life European Private Equity Trust (SEP)

Private equity investments are high-risk, but offer the prospect of high growth and diversification away from equities because they are unlisted. Private investors generally can’t access this asset class directly, but there are a number of investment trusts focused on this area.

Standard Life European Private Equity Trust takes a fund of fund approach, buying other private equity funds rather than direct investments. This means it has exposure to hundreds rather than tens of investments. But a fund of funds won’t benefit as much from the uplift of a single realisation as a directly investing private equity fund.

The trust has outperformed broad indices such as the FTSE All-Share over one, three and five years, and has a mature portfolio – more than 40 per cent of its investments are five years old or more. It is focused on managers in Northern Europe and mainly invested in buyout deals. Most of its assets are in continental Europe, with just over a third in the US and UK. Emma Bird favoured keeping this trust in the selection.

Pantheon International (PIN)

Fund of funds Pantheon International’s (PIN) assets are spread across different investment styles and stages, including buyout, venture, growth and special situations, with the aim of reducing volatility of returns and cash flows. Its diversified maturity profile means it is not overly exposed to any one vintage.

Around 60 per cent of its assets are in the US and a quarter in Europe.

The trust has a good long-term performance record, beating broad indices such as the FTSE All-Share and FTSE Small Cap, and over longer periods the average return for private equity funds of funds.

NEW ENTRANT: HarbourVest Global Private Equity (HVPE)

HarbourVest Global Private Equity has one of the strongest performance records among private equity funds of funds, and in September last year moved its listing from the specialist fund market to the main market. Although its discount is relatively wide at the moment, it has been tighter, and the relisting could help with this. The trust has nearly two-thirds of its assets in buyout deals and over 60 per cent in the US. Nearly two-thirds are in consumer and technology sector companies.

“HarbourVest Global Private Equity gives investors highly diversified and low-risk exposure to global private equity, with the portfolio comprising 750 funds and nearly 7,000 underlying companies,” says Alan Brierley, director, investment companies team at CanaccordGenuity. “The management team can demonstrate an impressive depth of experience and long-term track record. Since launch, HVPE has delivered an annualised NAV total return of 11.2 per cent, comfortably outperforming the MSCI World and Morningstar Listed Private Equity ex 3i indices by a compound 3.9 per cent and 7.6 per cent, respectively.”

NEW ENTRANT: SVG Capital (SVI)

After the financial crisis this trust made substantial changes so that it was not overcommitted to underlying investments, and it now also has a more diversified portfolio. Since the start of its capital return programme in 2011, it has returned £626m to shareholders. It has also made strong total returns ahead of many of its peers over one, three and five years, and has a low level of debt.

“SVG Capital [is becoming] a more diversified portfolio, offering exposure to a small number of leading buyout houses in Europe and the US,” comment analysts at Numis Securities. “We see scope for solid NAV performance over the next year, as well as a rerating over time as the merits of the new strategy become more widely recognised, supported by an ongoing commitment to share buy-backs.”

ETHICAL/ENVIRONMENTAL (3 FUNDS)

A number of investors are not just interested in making money but also making a difference with their investments. Although there is a smaller choice of ethical, charitable or environmental investments, if you look in the right places you can find funds that are not just good because of their returns.

If you are interested in this area, also see Royal London Ethical Bond (GB00B7MT2J68) in the bond section, and The Renewables Infrastructure Group (TRIG) and Foresight Solar Fund (FSFL) under alternative assets.

Impax Environmental Markets (IEM)

This investment trust seeks to exploit growth in markets for cleaner or more efficient delivery of basic services such as energy, water and waste. It mainly invests in quoted companies involved with technology-based systems, and products or services in environmental markets. Areas of focus include alternative energy and energy efficiency, water treatment and pollution control, and waste technology and resource management which includes sustainable food, agriculture and forestry.

Impax Environmental Markets beats the other investment trusts in this space over one, three and five years, and mostly outstrips broad indices such as the FTSE All-Share and FTSE World ex UK over these periods. Nearly half of its assets are listed in the US, with 30 per cent in Europe. The trust has a small and mid-cap bias which means it can be volatile.

F&C Responsible UK Equity Growth (GB0033396481)

F&C Responsible UK Equity Growth aims to invest in UK listed companies of which the products and operations are of long-term benefit to the community at home and abroad. It avoids investing in companies with damaging or unsustainable business practices, and its managers use their influence as investors to encourage best-practice management of environmental, social and governance issues through engagement and voting.

This fund has beaten the FTSE All-Share over three and five years, and is among the top 25 per cent of Investment Association UK All Companies funds in terms of performance over three years.

Nearly a quarter of its assets are in industrial sector companies, with substantial allocations to financials, consumer services and healthcare. Top holdings include mainstream companies such as HSBC, GlaxoSmithKline and Vodafone. But the fund is overweight small and mid-caps relative to the FTSE All-Share, so may underperform it when larger companies or areas such as resources and tobacco do well.

The BACIT (BACT)

BACIT, which stands for Battle Against Cancer Investment Trust, is not an ethical or environmental fund but we have included it in this section because it donates 1 per cent of its NAV each year to charity – half each to The Institute of Cancer Research and The BACIT Foundation. It is a fund of funds and the underlying investment managers do not charge fees to the trust because of its charitable aim.

This is essentially a wealth-preservation fund because its underlying investments are largely hedge funds which private investors could not access directly, so it could be used in the same way as the funds in our wealth preservation section. The trust only launched in October 2012, but has managed to make positive returns in each of the three following calendar years. Stephen Peters, Emma Bird and David Liddell all favoured keeping it in the selection.