Every year we present our selection of top funds, which we whittle down from the thousands available to private investors. The aim of our list is to help investors with their own research by highlighting what we believe to be some of the best and most interesting funds. The list can be used as a starting point for building or expanding a portfolio, as a source of ideas for exposure to certain sectors or as a way to compare your own holdings against alternatives.
We put together the list of funds using the knowledge of our team, and other sources such as research by other analysts. We consider the fund strategies and the manager record and we look at how the funds have performed against relevant indices and fund sector averages. We check any news or changes affecting the fund and we look at its ongoing charge and any performance fees.
We also look at the comments our expert panel make. This year’s expert panel comprises nine investment professionals. Six panel members reviewed the whole list and three only reviewed the investment trusts.
This year the biggest change we have made is to cut our favourite funds list from 100 to 50. We hope that by making the list more concentrated, picking good options will be easier.
Typically, an investment portfolio could be made up of anything between about one and 20 funds, depending on its size and the nature of the funds held. Read more on this in How many portfolio holdings should you have? (IC, 19.06.20). If you hold too many investments you are likely – at best – to end up with returns similar to a tracker fund but for a far higher cost. But many investors, including some featured in our Portfolio Clinics, find it hard to keep their number of investments down.
Our IC Top 50 Funds – and other favourite funds lists – are not the be all and end all. Favourite funds lists can be useful but are only one of many sources of information you should consult. We have always written about funds that are not on our list in our articles and weekly fund ideas, and will continue to. There are many good funds that merit inclusion in investment portfolios, if they are right for that investor's asset allocation. But there may not be space for them in a list of 50 or 100 funds. There are some areas of the market where there are many good funds, but as our list looks to include funds from many categories we cannot necessarily have all the good funds in one area because we have to leave space for other types.
Which brings me to what this list is: a selection highlighting good options in pretty much all the main fund categories. But it is not your portfolio – many of these funds may not be suitable for your personal investment purposes. So before considering investing in any of them, determine what your objectives and investment profile are, and then come up with a suitable asset allocation for them. You could maybe use a few of the funds highlighted in our list to implement this asset allocation, alongside other suitable options that we do not include.
Cutting our list down was difficult and we had to remove good funds. Sometimes deciding which ones would stay was difficult because there was not much to choose between them and the others within their category. And, at the end of the day, no one can know which individual funds will go on to deliver the best returns in the years ahead.
Examples of good funds that have not made the list include RIT Capital Partners (RCP), a multi-asset investment trust that has helped to preserve investors' wealth over the long term. In the shorter term, its volatility is perhaps not as low as that of some other wealth preservation funds, so in keeping with the purpose of this category we removed it. But it doesn’t mean that RIT Capital Partners can’t help to protect your wealth or diversify your portfolio over the long term.
BlackRock Continental European Income (GB00B3Y7MQ71) has delivered good performance and income. But we did not have space for two European equity income funds so went with European Assets Trust (EAT), very much for structural reasons. As an investment trust, it can build up a revenue reserve to compensate for years when the income from its holdings is not enough to pay its intended level of dividends and also draw on capital to do this. We appreciate that for some readers, especially those who are retired, a steady and reliable income is very important. But there are still arguments for holding BlackRock Continental European Income – especially if you can tolerate the possibility of a slightly lower income in some years.
Perhaps our most high-profile departure is Fundsmith Equity (GB00B41YBW71). which has delivered excellent returns and still appears to be doing so. But its large and increasing size – £27.8bn as of 31 August – has been a concern among investment specialists for a number of years and something that we have been monitoring. So with a number of good global equity funds to decide between, now seemed like the right time to take it off the list.
Of course, this doesn’t mean that it will not continue to perform well – we and various investment analysts could be wrong. So if you hold Fundsmith Equity you need to evaluate the evidence for yourself and decide whether an allocation to this fund is right for your portfolio.
More generally, a fund that might not fit on our list could be great in your portfolio. The IC Top 50 Funds are not your personal portfolio, or a personal recommendation or advice for you.
For all our selections across various sectors, see below: