Equity funds: UK and Europe
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.
UK ALL COMPANIES
The most popular fund type, UK All Companies portfolios, have the explicit remit of aiming to grow their investors' cash by investing in the shares of British listed firms.
1. OLD MUTUAL UK ALPHA - Five-year return: 89%
Manager and ex-Schroders man Richard Buxton looks to maximise capital growth by investing in a very concentrated portfolio of just 35 to 40 stocks. Lowcock says: "Buxton is very good at mining out good long-term growth opportunities."
2. ARTEMIS UK SPECIAL SITS - Five-year return: 77%
Tipped by Haynes, the fund has been managed by Derek Stuart since its March 2000 launch and boasts an impressive track record in seeking out under-loved stocks. It counts Vodafone and BT among its top holdings. Haynes says: "The manager has a strong record as a stockpicker, looking for turnaround and recovery plays in the UK stockmarket."
3. CF LINDSELL TRAIN UK EQUITY - Five-year return: 133%
With around 24 stocks, this is a highly concentrated fund, which is run by Nick Train. Dampier asserts he holds the manager in "high regard".
UK EQUITY INCOME
These funds deliver capital growth and a steady and rising income stream by investing in dividend- paying firms.
4. THREADNEEDLE UK EQUITY INCOME - Five-year return: 95%
Lowcock backs this fund, managed by Richard Colwell and Leigh Harrison. GlaxoSmithKline and AstraZeneca are among their current favoured plays.
5. MARLBOROUGH MULTI-CAP INCOME - Up 88% since 2011 launch
The manager Siddarth Chand Lall ventures into the smaller company space where other income funds fear to tread, says McDermott. He says: "The acclaimed stockpicking ability has led to significant outperformance since the fund launched in July 2011."
6. CF WOODFORD EQUITY INCOME - Up 16% since launch
Launched only last year, the portfolio is run by Neil Woodford who managed to turn £10,000 into £230,000 over 25 years during his time at Invesco Perpetual. Dampier says: "The CF Woodford Equity Income has been an exceptional start for the manager and his new fund."
Despite Europe's economic woes, this sector houses some top names including L'Oreal and BMW.
7. ARGONAUT EUROPEAN ENHANCED INCOME - Five-year return: 70%
Run by Oliver Russ, he looks to achieve a high-income yield, targeting 5% as well as some long-term capital growth. Haynes says:"It offers an income- focused approach to European equities, while hedging out the currency risk."
8. THREADNEEDLE EUROPEAN SELECT - Five-year return: 85%
This fund is run by Dave Dudding, who aims to pick high-quality companies that have the potential to generate superior returns. McDermott says: "It has been a top performer in recent years and is especially strong in down markets."
9. FP CRUX EUROPEAN SPECIAL SITUATIONS - Five-year return: 77%
Lowcock and Dampier both tip this fund, which until recently was known as Henderson European Special Situations. Its manager Richard Pease has moved firms and rebranded it. Dampier says: "He has built a formidable reputation."
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%.
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).
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).