Moneywise Fund Awards 2014
Whether you are looking to take advantage of the recently increased Isa allowance, putting money away for your kids or saving for retirement, choosing the right funds for you can be tough, with more than 2,000 to consider.
No investment fund is without risk - in October 2014 alone markets fell by more than 10% – but over the long term, with time to ride out the inevitable ups and downs of the stockmarket, your money will grow faster than it will in a cash savings account and will be better protected from the ravages of inflation.
But there is a big difference in the best and worst performing funds, so to help you make the right choice the Moneywise fund awards reveal the funds that have proved they can grow your money year in year out.
Whether you are looking for core UK holdings, a 'one-stop shop' mixed asset fund or something spicy to give your portfolio an adventurous edge, our winners, highly commended and commended funds are a great place to start your search for the right funds for the year ahead.
UK ALL COMPANIES
WINNER: Standard Life Investments UK Equity Unconstrained
HIGHLY COMMENDED: Neptune UK Mid Cap
With a value of £153.7 billion, UK All Companies is by far the biggest sector in the UK and more than twice as big as the global sector which comes in at number two. However rough a ride our own economy might be having, we as investors prefer our core holdings to be UK funds.
As a result there is no shortage of talent in the sector, and despite the ups and downs of the British economy, the best managers have proved that they can rise to the numerous challenges that have presented themselves in recent years. "This is a competitive sector and home to lots of talented managers," remarks Laith Khalaf, senior analyst at Hargreaves Lansdown.
For the second year in a row, our winner is Standard Life Investments UK Equity Unconstrained. In the past three years, this fund has returned more than 100% to investors and was top of the pile over three and seven years, only dropping to third place over five.
Gavin Haynes, managing director at Whitechurch Securities, says: "Ed Legget has been managing this fund since 2008 and has produced exceptional returns for investors." However, the performance of the fund comes at a price: thanks to Legget's preference for small and medium-sized companies and his aggressive investment style the fund is higher risk.
Tim Cockerill, investment director at Rowan Dartington, adds: "There's no doubting the ability of Ed Legget to generate very good returns, as his performance numbers show. However, it's a fund that thrives best when markets are buoyant and rising but when markets become bearish, volatility can increase so investors have to be prepared for this."
The runner-up in this category is Neptune UK Mid Cap, which is managed by Mark Martin. Patrick Connolly, certified financial planner at IFA Chase de Vere, says: "This fund has undoubtedly benefited from the strong performance of mid-cap stocks in general. However, credit must also go to the stockpicking abilities of the manager, who has done a better job of protecting gains than other mid-cap managers."
UK EQUITY INCOME
WINNER: Unicorn UK Income
HIGHLY COMMENDED: PFS Chelverton UK Equity Income
With the Bank of England base rate remaining at 0.5% and savings accounts offering paltry returns, it's hardly surprising that investors are relying on funds in this sector to generate an income from their capital. But it's not just income seekers who are flocking to the sector, as Connolly explains: "Investors are recognising the value of reinvesting dividends for capital growth, too."
Taking the crown in this highly competitive category is Unicorn UK Income. Cockerill says: "The IMA UK Equity Income sector is often criticised for consisting of funds that are very similar in their make-up. This can't be said of the Unicorn Income fund which is a small/medium cap- based fund and offers both a good income level and the potential for above average levels of growth in the long term. As such, its performance can be different to many within the sector and that's a good thing."
Haynes points out it's therefore a good diversifier for investors who also hold more mainstream UK Equity Income funds, which have a focus on larger blue-chip companies.
However, while this fund has performed very well it is important for investors to note this was under the former fund manager John McClure, who sadly passed away this year. Connolly adds: "While this award is an endorsement of his fantastic work, the challenge for Unicorn is to maintain the same level of performance in his absence."
Our runner-up in this category is last year's winner PFS Chelverton UK Equity Income. Haynes says: "Like the winner, this is an equity income fund that has performed well by investing in dividend-producing smaller companies. David Horner has built up a strong record of finding undervalued smaller companies and it has provided exceptional growth as well as an attractive income."
WINNER: Morgan Stanley Sterling Corporate Bond
HIGHLY COMMENDED: Rathbone Ethical Bond
Corporate bonds are often the mainstay of the cautious investor's portfolio – they offer better returns than cash but are considered to be less risky than stockmarket-linked investments. However, that position is being challenged as experts fear investors could suffer capital losses when interest rates do inevitably rise.
While their risk profile might be changing, IFAs say they still have a place. "Fixed interest still provides valuable diversification and protection alongside shares in a portfolio," argues Connolly.
So if you are sticking with bonds it's more important than ever that you make a wise choice. Our winner this year is the Morgan Stanley Sterling Corporate Bond fund.
Haynes says: "Although it is not one of the most familiar names for investing in corporate bonds Morgan Stanley has a strong fixed income team.
This has proved to be a defensively managed fund providing core exposure to a diversified portfolio of corporate bonds. The fund size remains relatively small compared to much of the peer group, so it can take advantage of opportunities that other larger funds cannot gain access."
Taking runner-up position is the Rathbone Ethical Bond. "Bryn Jones the longtime manager of this fund has delivered very consistent numbers and from a universe which is, because of its ethical screen, more constrained than most. The fund hasn't needed to trade down into sub-investment grade to achieve this either – most of the assets have been investment grade," says Cockerill.
UK SMALLER COMPANIES
WINNER: River and Mercantile UK Equity Smaller Companies
HIGHLY COMMENDED: Marlborough UK Micro-Cap Growth
It's not easy for investors making their first foray into this sector. Growth has been so impressive that a number of the best performing funds have had to close to new business to stop funds becoming too big and reducing the level of liquidity that is required when buying shares in smaller businesses. As a result, we had to exclude them from our awards. These include last year's winner and runner-up Fidelity UK Smaller Companies and Schroder UK Dynamic Smaller Companies (previously Cazenove UK Smaller Companies).
But for investors with an appetite for small-cap exposure our winner River and Mercantile UK Equity Smaller Companies is no consolation prize. Over three years it was the sector's top performer, beating the Fidelity and Schroder funds by a lengthy distance and providing investors with a return of more than 129%.
Haynes says: "Dan Hanbury [who managed the fund until September 2014] has been responsible for providing investors with some exceptional returns over the long term and the team has been strengthened by recruiting Philip Rodrigs, who is now the lead manager. The portfolio is focused on finding the best companies that are in the smallest 10% of the UK stockmarket."
Commenting on our runner-up in this category, Marlborough UK Micro-Cap Growth, Khalaf says: "The fund's outperformance of the FTSE Small Cap index has been exceptional. Smaller companies often fall out of favour with investors in times of market stress, such as 2008, but this fund has historically managed to shelter investors from the worst of these falls."
MIXED INVESTMENT 0-35% SHARES
WINNER: FP Matterley Regular High Income
HIGHLY COMMENDED: Jupiter Distribution
Funds in this sector keep risk to a minimum by capping equity exposure to 35%.
According to Connolly, our winner, FP Matterley Regular High Income 'does what it says on the tin'. "This is a diversified fund which does exactly what an investor would want from a fund in this sector; it produces consistent returns and provides a high degree of capital protection."
Commenting on the runner-up, Jupiter Distribution, Darius McDermott, managing director of Chelsea Financial Services, says: "This fund is a very consistent performer that seeks to offer investors a stream of enhanced income.
The fund's disciplined process helps to reduce the volatility of underlying capital."
MIXED INVESTMENT 20-60% SHARES
WINNER: Kames Ethical Cautious Managed
HIGHLY COMMENDED: Invesco Perpetual Distribution
Moving up the risk spectrum, funds in this sector also include cash and fixed interest but equity exposure has to account for between 20-60% of total assets.
Our winner is an ethical fund - Kames Ethical Cautious Managed – which Haynes describes as "an excellent core holding for balanced investors". Cockerill adds it is a "straightforward fund that is well managed in the traditional way of cautious managed funds, with the
split between bonds and equities set at a max of 60/40 in favour of equities. It requires a skilled and disciplined approach to security selection, which managers Audrey Ryan and Iain Buckle have consistently achieved and all within the boundary of an ethical remit – outstanding".
Invesco Perpetual Distribution is runner-up. McDermott says: "This fund combines elements from the specialist bond and equity teams at Invesco. The combination of fixed income gurus Paul Causer and Paul Read, and the increasingly impressive Mark Barnett, who has stepped out of Neil Woodford's shadow, makes this a very compelling option."
MIXED INVESTMENT 40-85% SHARES
WINNER: CIS Sustainable World
HIGHLY COMMENDED: Consistent Practical Investment
Upping the risk again, funds here are invested more heavily in equities, with exposure to stocks accounting for between 40% and 85% of total assets. Our winner here is CIS Sustainable World. "This is a growth- orientated fund with a strong track record. It invests predominantly in UK and US equities with, often, a significant weighting in healthcare and technology stocks," says Connolly.
By contrast, the runner-up, Consistent Practical Investment, invests predominantly in a range of investment trusts with global exposure. "The manager has performed well in the good times since he took over the fund. The challenge will be whether this can be maintained in a more challenging investment climate," Connolly adds.
WINNER: JPM US Select
HIGHLY COMMENDED: Old Mutual North American Equity
It's been a good year for investors in the US. According to Morningstar, in the 12 months to October the average fund was up by 15.5% – making it the top-performing sector over that period. "The US stockmarket is performing very strongly in line wight he recovery in the US economy," says Connolly.
"Companies are doing well, unemployment is down, the housing market is recovering and consumption and confidence are continuing to improve. Add to this cheaper energy costs and the US is in a pretty strong position and as a result investor sentiment is positive."
Our winner in this category is JPM US Select, which over three years has enjoyed growth in excess of 80%. Cockerill says: "The managers, of which there are three, run a diversified portfolio of more than 120 stocks which could dilute performance, but they take meaningfully active bets against the index to deliver performance. The results have been impressive especially against a market such as the US which has always been hard to beat."
Taking second place is Old Mutual North American Equity. "This is a very diversified fund which has been run by the same, well-regarded, team for the past decade. As long as this team stays together the future outlook for this fund remains pretty positive," remarks Connolly.
EUROPE EX UK
WINNER: Invesco Perpetual European Opportunities
HIGHLY COMMENDED: Invesco Perpetual European Equity Income
With problems in the eurozone continuing, it's been a challenging time for fund managers in this sector.
But that's not to say there aren't opportunities – the best stockpickers have been making some impressive returns. Taking pole position this year is Invesco Perpetual European Opportunities – the top performer over five years it has returned an impressive 85.9% to investors.
"Adrian Bignell has produced strong returns though a focused approach to stockpicking across European equity markets," says Haynes. "Bignell targets companies that he believes can deliver strong returns in the longer term, whether due to an effective business model, dominant market position, or a successful restructuring story."
Runner-up in this category is another Invesco fund, Invesco Perpetual European Equity Income. Cockerill says: "Stephanie Butcher has captured the improving fortune of many European stocks and has given investors very good returns over the past three years. To move ahead of other investors requires a combination of insight and courage, which she has clearly demonstrated."
ASIA PACIFIC EX JAPAN
WINNER: Newton Asian Income
HIGHLY COMMENDED: Schroder Asian Income
Many successful Asia Pacific funds have now become so big, managers are soft-closing funds to discourage new investors. In most cases, this involves charging an initial fee – of up to 4% in the case of First State funds. For this reason, we have had to exclude them from our awards.
Our winner, Newton Asian Income, provides a lower-risk way of accessing a higher risk region. Cockerill says: "Generating an income from Asian stocks has been a great way for income seekers to diversify their portfolios and with Newton's Asian Income fund investors get
a conservatively managed fund with a strict income criteria. These two factors suit an income fund in a region is riskier than where the traditional equity income funds invest. The fund offers a good balance between growth opportunities and income generation, and the results over the longer term bear this out."
The runner-up is Schroder Asian Income. Connolly says: "This fund invests in large, good quality Asian companies, has established a consistent track record and utilises the extensive research resources at Schroders."
WINNER: Schroder Global Healthcare
HIGHLY COMMENDED: Old Mutual Global Equity
Funds in this sector need to have 80% of their assets in international shares. But funds in this category don't necessarily provide instant diversification as the sector is also home to many thematic and specialist funds. Such funds can be perfect for adding a pinch of spice to your portfolio but may not necessarily be core holdings.
This year's winner, Schroder Global Healthcare is one such example. "Investing in healthcare can provide exposure to a defensive non-cyclical area of the stockmarket and be a good portfolio diversifier. With demographics of an ageing population across the globe, it remains a compelling structural growth story," says Haynes. But as with all specialist funds it is higher risk. As Connolly adds: "It is not a fund for the faint-hearted."
By contrast, the runner-up in this category – Old Mutual Global Equity – is closer to what investors might expect from this sector in that it offers an internationally diversified portfolio of equities, representing a range of industries. Haynes says: "The results have been impressive and the fund has provided investors with a good core holding to diversify their portfolio overseas."
GLOBAL EMERGING MARKETS
WINNER: Lazard Emerging Markets
HIGHLY COMMENDED: Invesco Perpetual Emerging Countries
Funds in this sector invest in regions including Asia, Latin America, Africa and parts of Europe. Although its one of the highest performing sectors over 10 years it has struggled over recent years, with the average fund bringing in just 22% over five years.
But that's not to say investors have missed the boat, as Haynes explains: "We have seen emerging markets show a modest recovery in 2014 after a sustained period of underperformance, at current valuations, many of these markets look cheap relative to their longer-term averages, and at some of the cheapest multiples relative to developed markets since the global financial crisis. As such I believe this could provide a good entry point to build a long-term position."
McDermott describes our winning fund, Lazard Emerging Markets, as the "stand out in the sector". He adds: "Many leading global brands are now emerging market companies and the Lazard aim is to use its 230-strong team of investment analysts to identify the global brands of tomorrow in these developing regions. The managers take a bottom-up, stockpicking approach to achieve this and use market volatility created by macroeconomic concerns to time entry and exit opportunities."
This year's runner-up is Invesco Perpetual Emerging Countries. Connolly says: "This is quite a diversified fund but one where the fund manager isn't afraid to back his convictions which has led to it outperforming significantly in rising markets."
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 increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
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.
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.
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.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
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.
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).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
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.