Moneywise Fund Awards 2013
Whether you're investing your Isa allowance, reviewing your pension or are a seasoned investor looking to add some oomph to your returns, choosing funds can be a daunting task. While the right fund brings with it tantalising dreams of a brighter future, a bad investment can turn into a nightmare that puts that vision at risk.
But that's not to say you should let your fear put you off investing. If time is on your side, a balanced portfolio that matches your attitude to risk will make you far more cash than a so-called safe savings account that may be paying you less than 1% a year on your hard-earned cash.
The key, of course, is picking the right selection of funds for you and that's where the Moneywise Fund Awards can help. Rather than selecting those funds that have shot the lights out this year, the Moneywise Fund Awards reward funds that have consistently outperformed. Our winners, runners-up and commended funds could be a great place to start and can help you on your way to building a balanced portfolio that - hopefully - won't go bump in the night.
UK ALL COMPANIES
WINNER: STANDARD LIFE INVESTMENTS UK EQUITY INCONSTRAINED
HIGHLY COMMENDED: FRANKLIN UK MID CAP
COMMENDED: Barclays UK Lower Cap, Lionstrust Special Situations, Royal London UK Mid Cap Growth
This isn't the most popular sector among investors at the moment - it was the worst-selling sector in 2012, according to Investment Management Association (IMA) figures, and if its data for the current year is anything to go by it has hardly regained favour in 2013. Nonetheless, while the UK economy faces many challenges, the best fund managers are negotiating the challenges well.
Commenting on this year's winner, Standard Life Investments UK Equity Unconstrained, Tim Cockerill, investment director at Rowan Dartington, says: "This fund is top of the pack and this is down to its aggressive, unconstrained nature; the portfolio of small, mid and large-cap stocks is actively managed with no recourse to a benchmark."
Scott Gallacher, chartered financial planner at IFA Rowley Turton, adds that fund manager Ed Legget has taken full advantage of the fund's 'unconstrained' objective and has significantly outperformed in four of the past five years. This phenomenal performance has come at a cost, however, and the fund is riskier than its peers. "This is definitely not a fund for widows and orphans," says Gallacher.
For the second year in a row, the highly commended fund is Franklin UK Mid Cap. Gavin Haynes, managing director at Whitechurch Securities, says: "This fund has been managed since 2006 by Paul Spencer, who runs a focused portfolio of around 40 to 50 holdings, looking for the best opportunities within the FTSE Mid 250 Index. Since the stockmarket recovery began in 2009, this fund has produced exceptional gains for investors."
UK EQUITY INCOME
WINNER: PFS CHELVERTON EQUITY INCOME
HIGHLY COMMENDED: JOHCM UK EQUITY INCOME
COMMENDED: Cazenove UK Equity Income, Royal London UK Equity Income, Standard Life Investments UK Equity Income Unconstrained
With savings rates remaining pitiful, it's not surprising equity income was the most popular sector for investors in the third quarter of this year, according to IMA figures. The winner this year is from the lesser-known PFS Chelverton Equity Income and Rebecca O'Keeffe, head of investment at Interactive Investor, is a fan: "Always a consistent performer, the past 12 months have seen the PFS Chelverton Equity Income fund pull away from the pack with spectacular performance. Being fully invested and investing in small, medium and large caps has contributed to the fund's performance. Investors who are looking at alternative equity income funds should certainly put this on a shortlist."
The runner-up is JOHCM UK Equity Income, which is co-managed by James Lowen and Clive Beagles. "They opt for companies with secure balance sheets that can give downside protection in weak markets. The result is a relatively defensive equity income fund with a dividend yield of around 4.6%," says Darius McDermott, managing director at Chelsea Financial Services.
He adds: "Both of these funds have benefited from their exposure to small and mid-cap stocks, which have done well in recent years. They may be attractive to investors who have more than one fund of this ilk, who want to make sure they have diversification down the market-cap scale rather than duplication of larger stocks."
WINNER: M&G STRATEGIC BOND
HIGHLY COMMENDED: M&G CORPORATE BOND
COMMENDED: BlackRock Corporate Bond, Invesco Perpetual Corporate Bond, Kames Investment Grade Bond
Often the mainstay of the cautious investor's portfolio, corporate bonds are falling out of favour with experts and investors alike as their risk profile rises in line with equities. According to the IMA, it has been the worst-selling sector since June. "Corporate bonds are a core holding for most clients as they are normally lower risk than equities. However, currently there are concerns about the risk of capital losses if, or indeed, when interest rates rise," says Rowley Turton's Scott Gallacher.
He adds: "Under these circumstances, Richard Woolnough's M&G Strategic Bond fund stands out as a core bond holding. It is different from traditional corporate bond funds in its degree of investment freedom and its flexibility, allowing the manager to seek value from a broader spread of investment types. Testament to M&G's experience in the bond sector, the runner-up fund in this category is the M&G Corporate Bond fund, also run by Woolnough.
Gallacher remarks: "An excellent fund that is only beaten by its Strategic sister's flexibility. Bizarrely, while it is designed to be more cautious than the strategic fund, over the past few years it has actually been slightly higher risk, though this is down to Woolnough's excellent use of the strategic fund's wider mandate than any failing in his management of the Corporate Bond fund."
MIXED INVESTMENT 40-85% SHARES
WINNER: CONSISTENT PRACTICAL INVESTMENT
HIGHLY COMMENDED: MFM HATHAWAY INCOME
COMMENDED: Baillie Gifford Managed Income, Fidelity Moneybuilder Balanced, Threadneedle Navigator Growth Managed
This sector might not have the catchiest name but the funds that reside in it make very useful core holdings. Funds in this sector must hold between 40 and 85% in equities with the remainder in cash or fixed interest - this means they offer investors exposure to a sizeable proportion of equities but that risk is balanced out with lower-risk asset classes.
Rebecca O' Keeffe says the winner in this category - Consistent Practical Investment - provides investors with instant diversification. "This is perhaps a less well-known fund but it has performed very well and is not just consistent but consistently good. Rather than holding individual stocks, the fund holds a broad mix of investment trusts, investing in a full range of global investments across different asset classes and sectors, which gives it even greater diversification. This fund is an ideal option for investors who simply want to buy and hold with minimal monitoring."
Commenting on our runner-up, MFM Hathaway Income, Haynes says: "This is a stockmarket-focused fund that has provided a pleasing return for investors over the past year." Like our winner, it invests heavily in equities including investment trusts.
UK SMALLER COMPANIES
WINNER: FIDELITY UK SMALLER COMPANIES
HIGHLY COMMENDED: CAZENOVE UK SMALLER COMPANIES
COMMENDED: Investec UK Smaller Companies, Lionstrust UK Smaller Companies, Marlborough UK Micro Cap Growth
While the UK economy as a whole continues to struggle, the UK Smaller Companies sector has had a stellar five years. The average fund in the IMA sector has grown 118.78%, while our winner, Fidelity UK Smaller Companies, is up an astonishing 275.47%.
Gallacher says: "The fund manager, Alex Wright, invests in unloved companies he views as having limited downside risks and unrecognised growth potential. However, he seeks to minimise risk by buying companies that have tangible assets, such as cash or property or defensive and sustainable earnings streams."
However, following huge inflows of cash this Isa season, Fidelity took the decision to close it to new investors in order for Wright to maintain his liquidity and flexibility. A good alternative for disappointed investors could be our runner-up, Cazenove UK Smaller Companies, whose performance is not far behind Fidelity's. Adrian Lowcock, senior investment manager at Hargreaves Lansdown, says: "Paul Marriage places emphasis on stock selection, rather than attempting to read the wider economic environment. He seeks companies with
a differentiated product that are market leaders in their chosen niche."
EUROPE EX UK
WINNER: BLACKROCK EUROPEAN DYNAMIC
HIGHLY COMMENDED: JUPITER EUROPEAN
COMMENDED: Baillie Gifford European, Invesco Perpetual European Opportunities, Threadneedle European Select
Our winner in this category - BlackRock European Dynamic - has shown exceptional performance, growing by 121.17% in the past five years under the leadership of Alister Hibbert.
Lowcock says: "European stocks turned a corner in 2013, but manager Alister Hibbert has been adding value for longer than that. He has a pragmatic investment style and looks to invest in short-term themes, taking profits from his investments, while running a long-term view on companies, the market and the economy."
Unfortunately for new investors, this fund has arguably been a victim of its own success and recently BlackRock took the decision to soft-close the fund.
Gallacher explains: "This essentially means that BlackRock thinks the fund has reached its maximum capacity and if it receives significant new monies the fund manager will be unable to find sufficient opportunities to invest it. Consequently, to discourage new investments into the fund BlackRock has increased the initial charges on the fund." So while it remains open - at a price - those disappointed by BlackRock's decision might find our runner-up, Jupiter European, a suitable alternative. "Managed by Alexander Darwall for 10 years, this fund has achieved similar returns with less risk," says Gallacher.
He adds: "While there is a tendency to avoid investing in Europe due to continuing economic problems, that misses two key points. Firstly, there are signs of a fragile recovery in Europe. Secondly, and more importantly, Darwall's own view is that his portfolio should be regarded as a collection of dynamic, long-term growth companies based in Europe that are exposed to growth in global trade and productivity. Consequently, this fund may be an opportunity to buy global companies relatively cheap while Europe remains out of favour."
ASIA PACIFIC EX JAPAN
WINNER: NEWTON ASIAN INCOME
HIGHLY COMMENDED: FIRST STATE ASIA PACIFIC SUSTAINABILITY
COMMENDED: First State Asia Pacific, First State Asia Pacific Leaders, Schroder Asian Income
This year's winner (and last year's runner-up) is one of a growing number of Asian income funds. Gallacher says: "Asian income investment is a relatively new concept, as historically Asian companies favoured reinvesting their profits to fund additional growth rather than paying them out as dividends. This has changed over recent years with more and more companies paying dividends." And in the current difficult economy, it is this focus on dividends that has given Newton Asian Income the edge in recent years, achieving better returns with lower risk than its peer group.
Commenting on the fund, Patrick Connolly, IFA at Chase De Vere, says: "This has been an incredibly popular fund, with a high yield of 4.7% as investors try to benefit from income stocks in Asia. It has performed really well with its team-based approach looking to invest in high-quality companies."
The runner-up in this category is First State Asia Pacific Sustainability, which has an ethical mandate.
Connolly says: "First State is one of the very best managers in Asia and the emerging markets and is doing a great job with this fund. The ethical criteria has actually helped performance in that some of the worst-performing stocks and sectors have been avoided, although the 'sustainable' mandate will count against it if the performance in these areas improve."
WINNER: LEGG MASON CLEARBRIDGE US AGGRESSIVE GROWTH
HIGHLY COMMENDED: THREADNEEDLE AMERICAN EXTENDED ALPHA
COMMENDED: Old Mutual North American Equity, Threadneedle American, Threadneedle American Select
"For some reason, finding good US investment funds has always been hard in the UK," remarks Gallacher. "But this Legg Mason fund is a cracker."
The fund, Legg Mason Clearbridge US Aggressive Growth, is managed by Evan Bauman and Richie Freeman, and focuses on smaller companies although it does have the freedom to invest higher up the cap scale. At the moment, Gallacher says the small company bias works. "In a developed market like the US, this would seem particularly sensible as there are more likely to be opportunities for the fund manager to add value by identifying undervalued smaller companies. This is because larger US companies will have thousands of analysts looking at them, giving little scope for any opportunity to have been missed."
Taking the runner-up position in this category is Threadneedle American Extended Alpha. "Threadneedle is a very consistent manager of US equities and this fund benefits from their depth of resources and expertise," notes Connolly.
WINNER: BAILLIE GIFFORD GLOBAL DISCOVERY
HIGHLY COMMENDED: SCHRODER GLOBAL HEALTHCARE
COMMENDED: Fidelity Consumer Industries, Henderson Global Growth, Legal & General Global Health and Pharma Index
You could be forgiven for thinking funds in this category invest all over the world, offering a one-stop shop for diversification. However, the reality is often different with the sector providing homes for many thematic funds - last year's winner specialised in consumer industries and this year's runner-up is a healthcare fund, for example.
Our winner this year isn't quite so thematic but it does have a bias towards smaller companies both in the UK and the US. Commenting on Baillie Gifford Global Discovery, Rebecca O' Keeffe says: "This is my favourite fund at the moment, the Baillie Gifford Global Discovery fund continues to outperform the sector over every time period.
"The performance is exceptional on both an asset allocation and stockpicking basis, with its 36% weighting in US equities a significant benefit. Its holdings in Tesla and Asos, both of which have seen their share price soar, have also contributed to making this the best fund in the Global sector."(This fund was formerly the European Smaller Companies fund, its mandate and manager were changed in 2011).
This year's runner-up is Schroder Global Healthcare. Says Haynes: "Schroders has a well-resourced team that invest in healthcare and medical products and service worldwide. Investing in healthcare can provide exposure to a defensive, non-cyclical area of the stockmarket and be a good portfolio diversifier and with an ageing population across the globe, it remains a compelling structural growth story."
GLOBAL EMERGING MARKETS
WINNER: FIRST STATE GLOBAL EMERGING MARKETS LEADERS
HIGHLY COMMENDED: FIRST STATE GLOBAL EMERGING MARKETS
COMMENDED: Aberdeen Emerging Markets, Lazzard Emerging Markets, Threadneedle Emerging Equities
The long-term growth story for global emerging markets may be compelling but the past few years have demonstrated how volatile these areas can be. More than ever, investors need to pick stand-out fund managers that are able to sail smoothly through choppy waters.
Our winner this year is First State Global Emerging Markets Leaders, and Gallacher points out that for almost 10 years its manager, Jonathan Asante, "has beaten the sector average, each and every calendar year".
Lowcock says: "The team is optimistic about the long-term prospects of the Asia Pacific region but are wary of the consequences of the high level of debt in developed nations and slowing growth in China. Against this backdrop, they continue to favour high-quality businesses with robust balance sheets and strong cashflows. We believe the fund remains a good choice for core Asian exposure."
First State takes the runner-up position in this category with its Global Emerging Markets fund. Unlike the leaders fund, which has a stock-driven approach, this fund focuses on bottom-up, fundamental analysis. McDermott says: "It seeks out well-managed companies that have sustainable business models and predictable growth."
Unfortunately for new investors, these funds are so popular they have now been 'soft-closed' and imposed a 4% initial charge for new investors. Check out our commended funds for more alternatives if you don't fancy paying more to get into these two.
WINNER: FIRST STATE ASIA SUSTAINABILITY
HIGHLY COMMENDED: KAMES ETHICAL EQUITY
COMMENDED: Ecclesiastical Amity, SVM All Europe SRI, Standard Life Investments UK Ethical
As demand for ethical investments continues to grow, Moneywise decided it was time to reward funds that invest on a socially responsible basis but can also be relied upon for strong growth. We teamed up with John Ditchfield, director of ethical IFA Barchester Green to agree the winner, First State Asia Pacific Sustainability, which has returned 167.46% over five years. Commenting on the fund, managed by David Gait, Ditchfield says: "We are long-term supporters of the First State Sustainability approach for investors - adapting their processes to a resource-constrained environment of rising energy and commodity prices. It picks long-term winners and screens out industries that are clearly detrimental such as tobacco, arms manufacture and alcohol production." However, in order to slow inflows of cash into this large fund, First State demands new investors pay the full 4% initial charge. Our runner-up, Kames Ethical Equity, is a UK fund that screens out banking, tobacco and pharmaceutical stocks and has only limited holdings of mining, oil and gas stocks.
Ditchfield says: "Manager Audrey Ryan has been involved with running its UK Equity Ethical strategies for more than 10 years now and throughout she has produced excellent returns. It communicates very well on ethical issues and publishes comprehensive data on its voting and engagement work."
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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%.
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.
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.
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.
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.