Moneywise Fund Awards 2012
The year 2012 hasn't been a bad one for the stockmarkets, but with both domestic and international economies continuing to struggle, investors have remained nervous - shunning equities and fleeing to the assumed safety of assets such as cash and corporate bonds.
But while this strategy might settle your nerves, it may not be good for your overall financial health.
The Moneywise Fund Awards are here to help you find the funds that can consistently outperform without keeping you awake at night.
UK ALL COMPANIES
WINNER: LIONTRUST SPECIAL SITUATIONS
HIGHLY COMMENDED: FRANKLIN UK MID CAP
COMMENDED: Cazenove UK Opportunities, Old Mutual UK Select Mid Cap, Royal London UK Mid Cap Growth
Nervous investors have been steering clear of this sector but despite the troubles facing the UK economy the best managers have been able to chart these difficult waters and have consistently posted fantastic returns.
Liontrust Special Situations, our winner in this category, serves as a shining example, boasting an 87.78% return over three years. "Julian Fosh and Anthony Cross have delivered very consistent performance over the short and long term with a process that is clear, logical and suited to today's environment. There are few funds that have achieved this combination of performance with consistency," says Tim Cockerill, head of collectives research at Rowan Dartington.
The runner-up in this highly competitive category is Franklin UK Mid Cap. Jason Hollands, managing director of communications at Best Invest, says manager Paul Spencer runs "a concentrated portfolio of quality but attractively valued businesses".
UK EQUITY INCOME
WINNER: UNICORN UK INCOME
HIGHLY COMMENDED: INVESTCO PERPETUAL HIGH INCOME
COMMENDED: RBS Equity Income, Invesco Perpetual Income, Threadneedle UK Equity Income
With income starvation a major issue for investors, this remains a hugely popular sector. But as Gavin Haynes, managing director of Whitechurch Securities, points out it's not just for incomeseekers. "The added value of reinvesting dividends means it's worth considering for investors seeking capital growth."
Ranking first for performance over three, five and seven years is our winner, Unicorn UK Income - which has been run by John McClure since its launch in 2004. "It has been incredibly consistent in beating the market," says Hollands.
Patrick Connolly, IFA at AWD Chase De Vere, says: "McClure's fund doesn't look like a conventional UK equity income fund as it doesn't include big householdname stocks. Instead, it fishes much lower down the cap scale with excellent results."
At £50 million, it's a minnow compared to our £12 billion runner up, Invesco Perpetual's High Income Fund. But size isn't holding back the Invesco fund, run by star manager Neil Woodford, who manages "to keep delivering superior returns," says Hollands.
WINNER: BLACKROCK CORPORATE BOND
HIGHLY COMMENDED: M&G STRATEGIC CORPORATE BOND
COMMENDED: Henderson Institutional Long Dated Credit, Legal & General Managed Monthly Income, F&C Corporate Bond
The past three years have been fantastic for corporate bonds and according to Investment Management Association (IMA) figures, it's been the best-selling sector for the past 12 months. However, with experts warning the easy money's been made, investors need to focus on quality managers who can rise to the challenges ahead.
Taking first place in this category is the Blackrock Corporate Bond fund. Despite only taking on the fund in 2010, manager Simon Blundell has maintained its longterm track record. Cockerill says: "In a sector dominated by very large funds, the £168.6 million Blackrock fund is a breath of fresh air. Its small size enables it to take positions that the larger funds can't and it has a flexibility that allows it to hold both gilts and high yield."
At the opposite end of the scale is our £5.5 billion runner up, the M&G Strategic Corporate Bond fund. Connolly describes manager Richard Woolnough as "one of the very best fixed-interest managers," able to "consistently add value in rising and falling markets".
UK SMALLER COMPANIES
WINNER: CAZENOVE UK SMALLER COMPANIES
HIGHLY COMMENDED: STANDARD LIFE UK SMALLER COMPANIES
COMMENDED: Investec UK Smaller Companies, Marlborough UK Microcap, Baillie Gifford British Smaller Companies
Smaller company funds can be a great diversifier for investors and with holdings often less widely researched than blue-chips, this is a sector where quality stockpickers can make stellar returns. Of our winner, Cazenove UK Smaller Companies, Connolly says: "This is a true smaller companies fund that invests very little in either micro or mid-cap firms. It has performed very well in recent years because of the stockpicking abilities of manager Paul Marriage."
Standard Life UK Smaller Companies takes second place. "Harry Nimmo is one of my favourite fund managers, having successfully managed smaller companies for more than 20 years, but with the fund at a shade over £1 billion, flexibility may be a challenge going forward," says Andy Gadd, head of research at Lighthouse Group.
MIXED INVESTMENT 40-85% SHARES
WINNER: FIDELITY MONEYBUILDER BALANCED
HIGHLY COMMENDED: BAILLIE GIFFORD MANAGED INCOME
COMMENDED: AXA Framlington Managed Balanced, Threadneedle Navigator Growth Managed, Jupiter Merlin Balanced
Formerly known as balanced managed, this sector includes funds that are required to hold a mix of assets – between 40% and 85% must be in company shares, with the remainder being held in cash and fixed interest to reduce the portfolio risk.
Our winner is Fidelity Moneybuilder Balanced, run by two managers. Hollands explains. "It effectively combines two portfolios, each managed by a leading light at Fidelity. Seasoned fixed-income investor Ian Spreadbury manages the bond portfolio, while Michael Clark, manager of the FTSE 350 focused Fidelity Income Plus fund, manages the equity portfolio." Connolly says the fund has consistently outperformed and with low levels of volatility.
The runner up is Baillie Gifford Managed Income. "This fund has proven to be a solid consistent performer, investing in a globally diversified equity portfolio, with risk counterbalanced by lower-risk fixed-interest exposure," comments Haynes.
EUROPE (EXCLUDING UK)
WINNER: THREADNEEDLE EUROPEAN SELECT
HIGHLY COMMENDED: BLACKROCK EUROPEAN DYNAMIC
COMMENDED: Jupiter European, Blackrock Continental Europe, MFS Meridian Continental Europe
"It has been a torrid time for managers of European equity funds with the euro crisis resulting in the indiscriminate marking down of otherwise good businesses and persistent outflows from funds," says Hollands. However, as a result he thinks European stocks are now exceptionally undervalued, presenting great opportunities for investors who are able to look beyond the negative newsflow.
The winner in this category is Threadneedle European Select. "Fund manager David Dudding has negotiated treacherous markets in Europe. His somewhat defensive approach has been beneficial during the difficult European climate," says Haynes.
Blackrock European Dynamic comes in second place. "The fund has lived up to its 'dynamic' name. As market conditions can change quickly, flexibility to respond will provide an edge over other funds," says Cockerill.
WINNER: AXA FRAMLINGTON AMERICAN GROWTH
HIGHLY COMMENDED: BAILLIE GIFFORD AMERICAN
COMMENDED: Threadneedle American, Scottish Widows American Select, Scottish Mutual North American
The S&P 500 is a notoriously difficult index to outperform and an area where there is a strong argument for a tracker approach. With recovery in the US sluggish, finding world-leading companies that can thrive in a low-growth environment has made managing money difficult.
The fund that takes first place, AXA Framlington American Growth, proves that the best managers can still outperform. "Hats off to Stephen Kelly for demonstrating it is possible for an active manager to 'beat the street'," says Hollands. Haynes adds: "This is a good actively managed fund for exposure to large-cap US equities."
Mike Brewis, manager of our runner-up fund, Baillie Gifford American, has been similarly successful. "The fund has outperformed the S&P 500 index over most time periods and the short and long-term figures are impressive," adds Haynes.
ASIA PACIFIC (EXCLUDING JAPAN)
WINNER: ABERDEEN GLOBAL ASIAN SMALLER
HIGHLY COMMENDED: NEWTON ASIAN INCOME
COMMENDED: First State Asia Pacific, First State Asia Pacific Leaders, Aberdeen Asia Pacific
As growth continues to slow in China, managers in this region have been investing against a more turbulent backdrop, forced to look elsewhere for more profitable opportunities.
For the second year in a row, our winner is Aberdeen Global Asian Smaller Companies. Hollands says: "It has set the standard for Asian funds, with a formidable Singapore-based operation headed up by veteran manager Hugh Young. This fund pays little attention to benchmark country weightings – currently holding a chunky 21% in Malaysia, for example. This approach has delivered benchmark obliterating returns over one, three, five and 10 years."
Last year's runner up, Newton Asian Income, also maintains its position this year. Hollands adds: "Asian income is interesting and the yields are attractive. A decade ago dividends were not generally a feature of these markets as many companies were controlled by family interests. That dividends are now becoming well established in Asia is a sign of improved shareholder friendliness and better standards of governance."
GLOBAL EMERGING MARKETS
WINNER: ABERDEEN GLOBAL EMERGING MARKETS SMALLER COMPANIES
HIGHLY COMMENDED: FIRST STATE GLOBAL EMERGING MARKETS LEADERS
COMMENDED: First State Global Emerging Markets, Aberdeen Emerging Markets, Aberdeen Global Emerging Markets
"Although returns over the past couple of years across many emerging markets have not been compelling, the long-term growth potential remains exciting in many areas," says Haynes.
Our experts agree Aberdeen and First State set the standard for investing in the emerging markets. The winner in this category is Aberdeen Global Emerging Markets Smaller Companies, which is managed by a team headed by Devan Kaloo.
"The Aberdeen Global Emerging Markets team is one of the best in the industry. This is reflected in the superb outperformance of this fund, which, while investing in smaller companies, diversifies risk admirably across different countries, sectors and stocks," says Connolly.
Our runner-up for the fourth year in a row is First State Global Emerging Market Leaders, managed by Jonathan Asante. "This fund has a more cautious approach, with an eye to downside protection. But cautious doesn't mean dull: Asante is prepared to take bold stances, for example, in avoiding Russia altogether," says Hollands.
WINNER: FIDELITY GLOBAL CONSUMER INDUSTRIES
HIGHLY COMMENDED: SCHRODER MEDIAL DISCOVERIES
COMMENDED: CF Adam Worldwide, Legal and General Global Health and Pharma Index, Investec GSF Global Franchise.
While sector rules stipulate 80% of the fund must be invested in equities and that they should be diversified geographically, the reality is that a number of the top-performing funds in this sector are thematic and less diversified than the global moniker suggests. As a result, they are only suited to investors with an appetite for risk.
Our winner is Fidelity Global Consumer Industries, managed by Nicola Stafford. The fund invests in the manufacture and distribution of consumer goods and includes household names such as Nestlé and Coca-Cola. "The strong performance of the fund is due to it focusing on large secure companies making products people buy in all economic environments," says Connolly.
Despite the specialist nature of runner-up Schroder Medical Discoveries, it has performed well with relatively low volatility and has done a good job of protecting investors' money in falling markets, he adds.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
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.
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%.
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.
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.
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.
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).
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.