IC Top 100 Funds 2019

Leonora Walters presents our 2019 selection of actively managed funds

September 12, 2019

One of the most important considerations when putting together an investment portfolio is to ensure that it is diversified in an appropriate way for you. For private investors, directly accessing the full range of assets you need to do this is likely to be impossible. But you can access most assets you are likely to need exposure to via funds and achieve the right level of diversification for your financial requirements.

There are plenty of funds to choose from, so you should be able to cover all bases. But this also means it can be difficult to pick out what seem like the best options in the areas you have decided to allocate to. For this reason, each year we put together the IC Top 100 Funds, a list of what we think look like some of the better options in a number of areas, out of the 3,000-plus active funds available to UK private investors. We highlight what we think are some of the better passive funds separately in the IC Top 50 ETFs.

It is important that you understand what the IC Top 100 Funds aims to do and what it is not. It's not a personal recommendation or advice for you, but rather an attempt to highlight some of the best fund options within a number of categories. Before you even think about putting your money into any investments, you need to 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. If you feel unable to do this then you should seek professional financial advice on how to manage your finances and what an appropriate spread of investments would be for you. You can find an independent financial adviser at www.unbiased.co.uk.

We have divided the IC Top 100 Funds into categories to try to make it clearer what a fund does and where it might fit into your asset allocation. The reason there are 100 funds in the list is because it looks to cover the needs of many different types of investors. But you shouldn’t hold anything like that number – this is a selection from which you could pick a few. Typically, an investment portfolio should be made up of anything between one and 15 funds, depending on factors such as its size.

Many of the funds in the list may be unsuitable for your investment purposes. 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 right for you. To invest in most of the funds in this list you should have an investment time horizon of at least five years, with the exception of some of the lower-risk bond and wealth preservation funds.

We highlight a number of funds in each category with different profiles to meet the needs of various types of investors. But you should not hold more than one or, at most, two from each, or you risk duplicating holdings and racking up unnecessary costs. If you hold two funds focused on the same area, make sure they are doing something different from each other, for example, a UK large-cap and a UK smaller companies fund.

While your selection of funds should be concentrated, your research should not be. You should research thoroughly the funds we highlight before investing in them. Make sure you understand how the fund works, exactly what its underlying assets are and its risks. Don’t invest in it if it doesn’t have a place in the asset allocation that you and/or your adviser have decided is appropriate for you. This list is not a substitute for doing your own research on a fund, and a fund's attributes could change after this article is published.

Also look further afield – the IC Top 100 Funds isn’t the be all and end all as we only have space for 100 funds. We report on funds not included in this list and highlight other good options in our articles and weekly tips.

Some of the investment trusts on the list may be on relatively 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 – as long as the trust is still fundamentally a good proposition. We highlight such opportunities in our articles and weekly tips.

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.

Changes

This year we have dropped 10 funds from last year’s selection and added 10 new ones. However, this does not mean you should sell your existing holding in a fund we have dropped. We drop funds for a variety of reasons, including high charges and poor performance, but in some cases just to vary the list better. We have a finite number – 100 – so cannot include every good fund. Some decisions were a close call and we don’t have a crystal ball – it could be that a fund we dropped goes on to deliver great returns.

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 do not sell a holding in a fund we have dropped from the list and replace it with one of the category’s new joiners, as it may have a very different profile. Often, the reason for its addition is something other than it being a replacement for the one that was dropped.

If you hold a fund that 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. Also remember that selling an investment outside a tax-efficient wrapper, such as an individual savings account (Isa) or self-invested personal pension (Sipp), can incur tax. And depending on which investment platform you use, it could also incur trading charges – costs that eat into your end returns.

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 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, so you need to factor these in. We chose the funds from a structure-agnostic perspective, but some platforms have different charging structures for investment trusts and open-ended funds, so check this when deciding whether to invest in a fund.

We also looked at the comments our expert panel made, 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. Six panel members reviewed the whole list, three just reviewed the investment trusts and one just reviewed the open-ended funds. They are:

Mick Gilligan, head of fund research, Killik & Co

David Liddell, chief executive, IpsoFacto Investor

Rob Morgan, pensions and investments analyst, Charles Stanley

Juliet Schooling-Latter, research director, Chelsea Financial Services and FundCalibre