Equity funds: Rest of the world
According to trade body, the Investment Association, collectively we now have £899 billion invested in funds - pooled investment schemes sometimes referred to as unit trusts or OEICs.
But investing can be a tricky business, given the plethora of products on offer. In addition, investing is also a long-term business and there will be ups and downs, so patience is key. While there is no shortage of funds to choose from, finding fund managers who can deliver consistently is another matter.
Rob Gleeson, head of FE Research, a fund analyst, explains: "Generally, the most consistent managers are the ones with a strong core strategy. While they will have ups and downs across the business cycle, over multiple cycles they offer relatively stable returns."
To give you an idea of where you might want to squirrel away some cash, we've picked out 50 fund choices, as recommended by some of the UK's top fund-pickers. Our panel includes: Darius McDermott, managing director of brokers Chelsea Financial Services; Mark Dampier, head of research at Hargreaves Lansdown; Gavin Haynes, managing director of Whitechurch Securities; and Adrian Lowcock, head of investing at Axa Wealth.
GLOBAL EQUITY INCOME
These funds invest in global dividend-paying firms.
10. ARTEMIS GLOBAL INCOME - Up 101% since July 2010 launch
Picked by Haynes and McDermott, the latter says: "We think this is one of the strongest funds in the sector."
11. NEWTON GLOBAL INCOME - Five-year return: 64%
A favourite of all our fund pickers, it boasts a historic yield of 3.37%. Microsoft is among its top holdings.
12. LEGG MASON IF CLEARBRIDGE GLOBAL EQUITY INCOME - (Five year return – 68%)
Also tipped by McDermott, the lead manager is Paul Ehrlichman.The fund selector believes the manager "takes a very different approach with peers" and as a result will often invest in parts of the market that others are sidestepping or missing altogether.
As the world's biggest economy, investors can't ignore the US. Uncle Sam has bounced back from the financial crisis faster and stronger than anywhere else, with its market reaching new highs.
13. L&G US INDEX - Five-year return: 97%
Past performance shows that many stockpicking or active fund managers struggle to outperform the US market, simply because it is so big and heavily researched. As a result, many investors opt for lower-cost tracker funds, which mirror the performance of the market. As a result, Haynes tips the Legal & General US Index fund, saying: "The US stockmarket is notoriously hard to outperform, so a low-cost index tracker is good for core exposure."
14. JPMORGAN US EQUITY INCOME - Five-year return: 97%
One of Lowcock's favourite funds in the sector is JPMorgan US Equity Income, which aims to deliver both an income and capital growth. Its manager Clare Hart invests in high- quality companies that have "strong brands, stable profits and the ability to return cash to shareholders through a sustainable dividend".
15. LEGG MASON CLEARBRIDGE US AGGRESSIVE GROWTH - Five year return: 131%
Tipped by McDermott, the fund's manager Richie Freeman has been at the helm since 1983 while Evan Bauman has been co- manager on the fund since 2009. "The managers have built a long and impressive track record while running this fund," says McDermott.
The Global sector consists of funds looking to deliver capital growth by investing in companies all across the globe, and therefore offer very wide diversification.
16. FUNDSMITH EQUITY - Up 97% since November 2010 launch
Tipped by Haynes, the fund invests in high-quality, well-established companies. Managed by Terry Smith, rather than trying to find tomorrow's winners, his philosophy is "to invest in companies that have already won". He favours resilient businesses whose advantages are difficult to replicate.
17. LINDSELL TRAIN GLOBAL EQUITY - Up 86% since March 2011 launch
Highlighted by Lowcock and Dampier, this is another high-conviction play, given it contains only around 26 holdings. Dampier asserts that managers Nick Train and Michael Lindsell "adopt a unique investment approach, which has led to a long history of outperformance".
18. TEMPLETON GROWTH - Five-year return: 68%
The fund seeks long-term capital growth shares of companies located anywhere in the world. Haynes, a fan of the process, says: "The fund is fronted by Dylan Ball, who seeks out-of-favour, cheaper areas of global equity markets."
Japan has endured its share of economic challenges but the government is pumping cash into the nation,via quantitative easing and many believe the land of the rising sun is on the precipice of a new economic age.
19. NEPTUNE JAPAN OPPORTUNITIES - Five-year return: 74%
McDermott and Haynes both tip this fund. It defines "high conviction", says McDermott. He highlights that back in 2008, its manager Chris Taylor, managed to deliver a massive 84% return as a result of his successful calls, while most other funds posted large losses.
20. SCHRODER TOKYO - Five-year return: 58%
Lowcock points to Schroder Tokyo. He says manager Andrew Rose is very skilled at identifying strong investment opportunities. Dampier adds: "Rose is an experienced fund manager with a process that has led to impressive levels of outperformance."
21. JUPITER JAPAN INCOME - Five year return: 42%
Haynes also rates Jupiter Japan Income. Run by Simon Somerville, he looks to achieve long-term capital as well as income growth. Its top investments include household names Toyota and Panasonic. Haynes says: "This fund offers an equity income approach to Japanese equities, looking to exploit the increasing focus on dividends in this market."
GLOBAL EMERGING MARKETS
This style of fund invests in the world's burgeoning and quickest growing economies, such as Brazil, India and China. Definitely at the higher end of the risk spectrum but for the intrepid the potential gains can be a big draw.
22. JPMORGAN EMERGING MARKETS INCOME - Up 8% since July 2012 launch
This fund looks to deliver income while participating in long-term growth. Its management team invests across a wide spread of countries, including Taiwan,Turkey, South Africa and China.
Haynes is a fan, as is Lowcock. He says: "The team has a lot of expertise and the income focus adds extra discipline when it comes to selecting stocks."
23. ABERDEEN GLOBAL EMERGING MARKETS SMALLER COMPANIES - Five-year return: 31%
Aberdeen is a known emerging markets specialist and this fund's long-term performance holds up.The portfolio, which as its moniker makes obvious, invests in smaller companies across the region.Tipped by Lowcock, the fund is at the higher end of the risk curve.
24. M&G GLOBAL EMERGING MARKETS - Five-year return: 7%
Run by Matthew Vaight since launch in 2009, McDermott highlights that the manager heads up the fund with the intention of "finding companies that other managers have not". For his part, Vaight believes the combination of long-term growth trends and improving corporate culture will make emerging markets an exciting asset class for years to come.
ASIA PACIFIC EX JAPAN
These equity funds are typically on the higher end of the risk scale and generally invest, among many others, in Malaysia, Singapore, the Philippines and Australia.
25. FIRST STATE ASIA PACIFIC LEADERS - Five-year return: 64%
Backed by all our fund pickers, the portfolio is run by veteran manager Angus Tulloch, who has more than 30 years' experience managing investments in the region."He takes a conservative investment approach and his long-term track record is outstanding says Dampier.
26. NEWTON ASIAN INCOME - Five-year return: 55%
This fund, backed by Lowcock, aims to achieve income together with long-term capital growth. Its former manager Jason Pidcock stepped down in May and the fund is now under the responsibility of the wider team.
27. HERMES ASIA EX JAPAN EQUITY - Up 63% since November 2012 launch
Tipped by Haynes and McDermott, the fund is run by Jonathan Pines. McDermott says:"It's run by a highly disciplined team, investing in high-conviction stocks trading cheaper than expected relative to quality."
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
Open-ended investment companies are hybrid investment funds that have some of the features of an investment trust and some of a unit trust. Like an investment trust, an Oeic issues shares but, unlike an investment trust which has a fixed number of shares in issue, like a unit trust, the fund manager of an Oeic can create and redeem (buy back and cancel) shares subject to demand, so new shares are created for investors who want to buy and the Oeic buys back shares from investors who want to sell. Also, Oeic pricing is easier to understand than unit trusts as Oeics only have one price to buy or sell (unit trusts have one price to buy the unit and another lower price when selling it back to the fund).