The IC Top 100 Funds looks to highlight some of the better options out of the 3,000-plus active funds available to UK private investors. But it's not a personal recommendation or advice for you, rather it’s an attempt to highlight some of the best fund options within a number of categories.
We have divided the list into categories to try to make it clearer what a fund does and where it might fit into your portfolio. Some of the funds could be used as core holdings, while those focused on high-risk and esoteric assets should only account for a small portion of larger, well-diversified portfolios and held over the long term. But at the end of the day, what you include in your portfolio primarily depends on your particular specifications, such as the purpose of the money you are investing, your timescale and risk appetite.
Many of the funds in this list may not be suitable for your appropriate asset allocation. And if you have a short timeframe or cannot afford to lose any money, investing in risk assets such as these funds may not be the right strategy for you. With pretty much all the funds in the list, except perhaps some of the lower-risk bond and wealth preservation funds, you should have an investment time horizon of at least five years.
Before you even think about putting your money into investments, determine what your objectives and investment profile are, and then come up with a suitable asset allocation that you could use some of these funds to implement. We run many articles on this issue, including in the Money section of the magazine.
When putting together an investment portfolio, less is more, so do not buy all 100 funds! This is a selection from which you could pick a few. Typically a fund portfolio should be made up of anything between one and 15 funds, depending on factors such as its size. We regularly run articles 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 Portfolio Clinic articles.
In many cases, you shouldn’t buy more than one fund in each category. Some of the categories, for example global growth and UK equity income, are fairly large because they include funds focused on one area but with different profiles to meet the needs of various types of investors.
While your selection of funds should be concentrated, your research should not be. This list highlights some suggestions that you should go and research thoroughly before putting money into them. Make sure you understand how a fund works, exactly what its underlying assets are and its risks.
The IC Top 100 Funds also isn’t the be all and end all – we only have space for 100 funds – so consider things beyond it. We certainly do, and highlight other good funds in our articles and weekly tips.
Don’t sell a fund just because we dropped it from the list. We have excluded funds for a variety of reasons, including high charges and poor performance, but as we have a finite number – 100 – 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 you to stick with it, so only sell a fund after you have conducted thorough research on it and considered your personal circumstances. Selling can also incur tax and a trading charge.
In categories where we have dropped a fund and added a new one, the new joiner is not necessarily a direct replacement for the one that was dropped. So don’t automatically sell a holding we have dropped from the list and replace it with one of the category’s new joiners without further investigation and consideration of your personal circumstances. The new fund in the list might be very different from the one that has been dropped, and the reason for its addition might not be because it is a replacement for the one that was dropped.
Some of the investment trusts in the list are on relatively high premiums to net asset value (NAV). For example, at time of writing RIT Capital Partners (RCP) was on a premium of over 9 per cent. If this is the case it may be best to delay your purchase until the premium has reduced or moved to a discount, as long as the trust is still fundamentally a good proposition. We highlight such opportunities in our articles and weekly tips.
We have evaluated the funds’ costs on the basis of their ongoing charge and any performance fees. 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.
How we created the list
We started by looking at how each fund has performed against relevant indices and fund sector averages, and any news or changes affecting the fund. 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. We also looked at the comments our panel of experts had on the funds as well as a number of other sources, including the tips and articles we have written over the past year, and other analyst research.
When adding new funds, we considered our experts’ suggestions, our own tips and articles, analyst research, performance data and costs.
Our expert panel comprises 10 investment professionals, including fund analysts and wealth advisers. Seven panel members reviewed the whole list and three, as indicated, just reviewed the investment trusts. They are:
Darius McDermott, managing director, Chelsea Financial Services and FundCalibre
Mick Gilligan, head of fund research, Killik & Co
Jason Hollands, managing director, Tilney investment management services
Gavin Haynes, managing director, Whitechurch Securities
Ben Yearsley, director, Shore Financial Planning
David Liddell, chief executive, IpsoFacto Investor
Rob Morgan, pensions and investments analyst, Charles Stanley
Emma Bird, research analyst, Winterflood (investment trusts only)
Monica Tepes, head of investment companies research, FinnCap (investment trusts only)
Ewan Lovett-Turner, director, investment companies research, Numis Securities (investment trusts only)
This year’s changes
Nine new funds have entered the list, including two bond funds. Bonds may not be fashionable at the moment, but they still have a part to play in balancing many investors' portfolios.
We have added two value-focused funds, Jupiter Global Value Equity (GB00BF5DRJ63) and Man GLG Undervalued Assets (GB00BFH3NC99). Value investing involves buying when the price seems lower than you think it should be, and as an investing style has not done well for much of the past decade. But some analysts think the investment environment is changing, and some of the panel thought we should beef up our selection of value-style funds. There are also other funds on the list that take a value approach, including Man GLG Japan CoreAlpha (GB00B0119B50), Schroder European Alpha Income (GB00B6S00Y77) and, to a certain extent, Edinburgh Investment Trust (EDIN) run by Mark Barnett and LF Woodford Equity Income (GB00BLRZQB71) run by Neil Woodford.
We decided to put all the bond funds together, so moved Rathbone Ethical Bond (GB00B7FQJT36) out of the ethical section into this area. It is also such a good fund it should be of interest to all investors looking for a corporate bond fund – not just ethical investors.
The move makes our selection of ethical funds, which is now four, seem rather small. But there are in fact nine ethical or environmental funds across the IC Top 100 Funds. These include new entrant Hermes Global Emerging Markets (IE00B3DJ5K90), of which the managers apply environmental, social and governance factors into their investment analysis.
We have scrapped the commodities category and moved BlackRock World Mining Trust (BRWM) into the specialist equities category. This is because it invests in the shares of mining companies rather than commodities themselves. If you want exposure to a physical commodity such as gold have a look at the IC Top 50 ETFs.
One of the expert panel said last year's selection of three North America funds was very small, considering the US is the biggest stock market and economy. And following this year’s review it has dropped to two. But this is not because we are reducing US exposure. HSBC American Index (GB00B80QG615) is one of two passive funds we have taken out of the list because we have reverted to only including actively managed funds in the IC Top 100 Funds. We remain very much in favour of using both passive and active funds, and have a dedicated passive fund list – the IC Top 50 ETFs. We will also be putting together a list of the best open-ended tracker funds in the coming months.
The IC Top 100 Funds' exposure to North America, meanwhile, is larger than it seems. Although there are only two specific North America funds, if you look at the allocations of the global and global equity income funds in the list you will see that a number of these have considerable exposure to this region.
For investors who have a higher risk appetite and longer time horizon, meanwhile, many of the specialist equities and alternative asset funds on the list also have considerable US exposure. The four technology and healthcare funds in particular have high exposure to this market because this is where many of the best opportunities in these areas are listed. And private equity investment trusts Pantheon International (PIN) and HarbourVest Global Private Equity (HVPE) have over half of their assets in US unlisted companies with the potential for growth – rather than expensive listed large-caps.
This year we've added a table with performance figures, charges and manager start dates. The latter piece of data is particularly important because if a fund appears to have a strong performance record but the manager who is responsible for that has left, it might not do so well going ahead.
The performance data runs to the end of August, but markets and investments move around all the time. So don’t be surprised if a fund's performance numbers in this table are different to the ones you see on a data provider's website on the day you look at them. Also remember that past performance is not a guarantee of future performance.
In the investment trust performance data in the table we have included the share prices because that is what you get. But how the trust’s assets are doing and its manager's success are reflected in the NAV performance, and this can differ to the share price. So look at the NAV performance too when deciding whether to invest in a trust, as a strong share price performance not backed up by similar NAV returns could be the result of short-term market sentiment that may not last. Strong NAV returns, by contrast, may eventually be reflected in a trust’s share price, although there is no guarantee of this.
In my assessment of the investment trusts I largely considered the NAV performance, but the share price performance in the table may be different to my descriptions of their performance records.
For all our selections across various sectors, see below:
Global Equity Income & Overseas Equity Income
