Investment fund tips for 2012
NEPTUNE GLOBAL EQUITY: Price 256.5p Yield 0.1% TER 2%
Patrick Connolly, spokesperson for AWD Chase de Vere, picks this fund from a investment house well known for its thematic, ideas-driven approach. It has been managed by Robin Geffen for 10 years and has established a strong track record over that time: three-year performance is top quartile in the IMA global sector. "Geffen has complete geographical flexibility, making this effectively a Neptune global best ideas fund," says Connolly.
He acknowledges that Geffen's flexible approach means performance can be volatile: a belief that emerging markets will outperform in the longer-term has resulted in fourth-quartile performance over the past year, as emerging markets have not had a happy time.
However, he says: "For those willing to take risks, this fund should perform well in the medium term."
RATHBONE GLOBAL OPPORTUNITIES: Price 61.8p Yield Nil TER 1.56%
"One of our favoured growth funds is Rathbone Global Opportunities, which provides exposure to global companies, including UK companies but excluding emerging markets ones" says Darius McDermott, managing director at Chelsea Financial Services. It has an exceptional track record under manager James Thomson, having delivered first-quartile performance over one, three and five years.
The fund looks for growth companies that are easy to understand in industries with high barriers to entry and are "scaleable" – able to grow their business without adding significantly to the cost base. One such scaleable business is internet property company Rightmove, the largest holding in the portfolio.
M&G GLOBAL BASICS: Price 624.7p Yield 0.1% TER 1.67%
Although he is reluctant to recommend any growth fund as a short-term fix, given the likely state of the economy over the next 12 months, Melvyn Bell, investment manager at Lowes Financial Management, believes M&G Global Basics taps into a long-term global trend in the shape of population dynamics. He says: "The world's population is growing, and an increasingly large proportion of it is becoming more affluent and consuming more Western-style products."
Under Graham French's respected management, the M&G fund invests in the raw materials, processors and global retailers and distributors likely to benefit from rising consumer demand.
"Of course, commodities can be volatile and that means the fund's performance can be unpredictable. But over the longer term, these companies will gain value, especially if they have a global presence." The fund has achieved first-quartile three-year returns, up 70% over that period.
JUPITER MERLIN GROWTH PORTFOLIO: Price 226.4p Yield Nil TER 2.57%
Martin Bamford, an independent financial adviser at Informed Choice, focuses primarily on asset allocation in creating client portfolios. "We would tend to recommend a portfolio of different single-asset-class funds for growth investors, as this delivers greater asset allocation control" he says.
The Jupiter portfolios are funds of funds. The growth version invests across a variety of investment asset classes to achieve long-term capital growth. "The Jupiter Merlin team is recognised as one of the best in this space. The fund has delivered above-average returns over one, three and five years," says Bamford.
LIONTRUST SPECIAL SITUATIONS: Price 180.3p Yield 0.5% TER 1.94%
Philippa Gee, managing director of Philippa Gee Wealth Management, is a fan of the Liontrust Special Situations fund, managed by Anthony Cross. The fund uses Liontrust's special investment process to select a concentrated portfolio of multi-size UK companies with distinctive, intangible strengths that competitors struggle to reproduce.
Gee says: "Cross's fund has done well in the challenging investment climate of the past three years." Over three years, it has more than doubled in value, while the All- Share has returned 43%. It tops the UK all companies sector over one year and is ranked sixth out of 278 funds over three. The yields quoted are data provider Lipper's projected yield figures, which are usually lower than those quoted on fact sheets. TERs do not include performance fees.
Where are financial advisers suggesting their income-seeking clients put their money? Faith Glasgow asked our panel for two recommendations.
The first group of tips are for investors looking for an immediate high income, even if that involves the potential sacrifice of an element of capital. The second group of funds are for those with a longer-term perspective, on the hunt for a fund that might be delivering a lower yield but is designed to grow capital and the income stream produced over the years.
M&G STRATEGIC CORPORATE BOND: Price 64.5p Yield 3.2% TER 1.16%
Melvyn Bell, investment manager at Lowes Group, recommends the flexibility of a strategic bond fund. He likes M&G's Strategic Corporate bond because of its strong performance and the "excellent track record" of manager Richard Woolnough. "He has more high yield in the portfolio than he's ever had, but the big plus is that he can switch out if he wants," adds Bell.
If maximising income at all costs is a priority, Bell suggests the Kames Capital High Yield bond fund (yielding 5.8%). "High-yield funds are producing attractive yields now, and the companies they're investing in are generally a lot more secure than they used to be," he adds.
NEWTON HIGHER INCOME: Price 50.9p Yield 6.9% TER 1.71%
"I know many don't like Newton Higher Income, but it has delivered what it set out to do, in terms of a focus on higher income rather than capital preservation or growth," argues Philippa Gee of Philippa Gee Wealth Management. "Yes, its dividend expectations were lowered with a 25% cut in September, but it remains attractive for what it does."
However, its medium-term performance has been mediocre: over three years it has produced total returns that languish in the third quartile.
SCHRODER INCOME MAXIMISER: Price 56.9p Yield 6.4% TER 1.71%
As Adrian Lowcock at broker Bestinvest observes, this equity-based fund managed by Thomas See provides a meaty yield and a valuable income boost to the portfolio of any higher-income seeking investor. Income Maximiser uses derivatives and shortdated call options to generate extra income.
However, Lowcock cautions that, "in focusing on maximising income, it sacrifices much of the potential for capital growth". This UK fund, and its Asian counterpart, are also liked by Anna Sofat of Addidi Wealth, though she too adds a caveat, warning that volatility may be above average.
M&G OPTIMAL INCOME: Price 119.9p Yield 3.4% TER 1.41%
"I prefer high-yield bonds right now, as you are at least being paid for the risk you're taking," says Darius McDermott of Chelsea Financial Services. One high-yield fund he recommends is M&G Optimal Income, managed by Richard Woolnough: "M&G has an excellent bond team with consistent performance."
The fund is currently paying a relatively modest yield, but in terms of total returns it has turned out first-quartile performance over one and three years.
THREADNEEDLE EMERGING MARKET BOND: Price 59.3p Yield 4.7% TER 1.7%
Sofat is keen on the opportunities for high yield from overseas debt. It is possible to tap into the asset class through sterling strategic bond funds, but for a more focused approach, Sofat picks Threadneedle's sterling-based bond fund because it has "a good track record - a 12-month yield of nearly 7% and strong three and five-year performance with relatively low volatility."
INVESCO PERPETUAL INCOME: Price 1,217p Yield 3.9% TER 1.68%
James Davies, investment research manager at Close Brothers Asset Management, believes that a good starting point for equity investors needing a steady but growing income is the Invesco Perpetual Income fund, managed by Neil Woodford. "He specifically focuses on companies that are capable of growing their earnings and dividend distribution over time," explains Davies. "The long-term performance relative to the wider market is excellent, though during times of market exuberance the fund can appear to lag."
That's reflected in the fund's third-quartile returns over three years, although it's back up among the leaders over the past 12 months.
JUPITER INCOME: Price 393.6p Yield 4.5% TER 1.69%
Philippa Gee picks Jupiter Income, managed by Tony Nutt, as "a really interesting fund'. As she explains, the fund has "gone through some very challenging years and had been written off by some' - no doubt on the back of its sub-par performances over three and five years.
"However, this fund is certainly coming good in recent nervous markets and Tony Nutt is a manager I still trust," adds Gee.
NEWTON ASIAN INCOME: Price 152.8p Yield 5.3% TER 1.66%
Newton's Asian Income fund, managed by Jason Pidcock, is tipped by Adrian Lowcock on the grounds that it not only off ers a high and growing dividend but also gives investors exposure to the greater growth potential available from Asian companies. "The manager has a strict income-yield discipline, which we believe is essential to building a strong long-term track record," he adds.
The fund is top of the Asia Pacific ex Japan sector over the past year, having been particularly resilient in more difficult markets, and fourth over three years. Over five years it has returned 79% against the sector average of 48%.
M&G GLOBAL DIVIDEND: Price 124.8p Yield 3.5% TER 1.67%
Darius McDermott highlights the more internationally oriented M&G Global Dividend fund. "We like it because it specifically looks for companies worldwide that are growing their dividends," he says.
However, the manager, Stuart Rhodes, is equally focused on capital growth potential, and is aiming to maximise total returns as well as growing distributions over the long term. Rhodes's fund has been top-quartile over one and three years, returning 59% over three years against the global sector's 37%.
LAZARD GLOBAL EQUITY INCOME: Price 97.8p Yield 5% TER 1.59%
Anna Sofat suggests Lazard's fund, managed by Andrew Lacey, as a longer-term investment for a growing income stream. "This is a well-diversifi ed fund with a 12-month yield of approximately 5.5% and solid three-year performance. It is also slightly less volatile than many global equity funds," she observes.
The past year has seen top-quartile performance, though there's little comfort for investors in real terms: the fund is marginally down on 12 months ago, but less so than the sector average.
The yields quoted are data provider Lipper's projected yield figure, which is usually lower than those quoted on factsheets. The total expense ratios do not include any performance fee.
This article was written for our sister publication Money Observer
Usually charged as a percentage of returns for performance above a specified benchmark, such as an index. The fee can range from 10% to 20% of total investment returns on a low starting benchmark such as Libor and investors could find themselves paying extra fees for merely average performance. Note that these funds do not compensate investors when the manager underperforms the benchmark.
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.
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.
Corporate bonds are one of the main ways companies can raise money (the other is by issuing shares) by borrowing from the markets at a fixed rate of interest (the reason why they are also known as “fixed-interest securities”), which is called the “coupon”, paid twice yearly. But the nominal value of the bond – usually £100 – can fluctuate depending on the fortunes of the company and also the economy. However it will repay the original amount on maturity.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
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.