Pick of the top growth funds
CORE GROWTH FUNDS
These funds, chosen for broad, reliable exposure, come in a range of shapes, sizes, sectors and strategies. Some are nominated on the grounds of their low price and breadth of exposure; others on consistency of performance.
Some are limited to the UK, while others have a global remit, and they also span the spectrum as far as familiarity is concerned.
Fidelity Special Situations
"Fidelity Special Situations is a household name as a result of Anthony Bolton's long and spectacularly consistent period as custodian, but Sanjeev Shah has continued to do a great job since he took over from Bolton two years ago," says Martin Bamford of Informed Choice, who selects it as his core growth choice.
"As a fund that offers exposure to a range of different UK-based companies, including small and large, it has delivered first-quartile returns over one, three and five years," he adds.
The year to the end of November 2009 has seen returns of 36% against the FTSE All-Share index's 29%.
Fidelity Special Situations was also identified as a long-term specialist growth investment by Raj Shah of Blue Wealth, who agrees with Bamford that "Sanjeev Shah is proving a worthy successor to Anthony Bolton".
HSBC FTSE All-Share Index
A number of our experts - and not only those who focus mainly on passive funds - believe that for broad core exposure, particularly to well-researched Western markets, there is nothing to be gained by paying extra for an active fund manager.
As Gordon Bowden at Quainton Hills Financial Planning puts it: "Why pay high management charges when you can track the FTSE All-Share index at an annual management charge as low as 0.25% through a tracker such as that from HSBC?"
The market rally since March last year has reflected directly on the performance of these trackers: over the year to 1 December 2009 they are up around 36% so are only marginally behind the All-Share and the UK all companies sector average.
The flip side of course is that there's no shelter from the storm when the market starts to fall.
That can be mitigated, to some extent, through geographical spread and, to this end, Stephen Willis of Piercefield Asset Management uses a mix of trackers, from Dimensional Fund Advisors, HSBC and Legal & General, covering different regions.
"These funds are able to capture the inherent growth in particular regions, with exposure to a diversified number of sectors and securities, and at very low cost. Typically, they have an annual management charge of between 0.2% and 0.3%," he explains.
Jupiter Merlin Growth
"As a fund of funds, this vehicle is, to some extent, reliant upon outperformance to justify the higher charges associated with this type of fund," comments Jennifer Storrow of Gee & Co. The Merlin Growth portfolio is no exception, with a hefty total expense ratio of 2.57%.
However, Storrow continues: "Over the long term the fund has delivered and, as a core growth fund for a portfolio, I still feel it takes some beating.
"Over the year to 1 December it returned 28%, in line with the IMA active managed sector average, but over three and seven years it is among the top-quartile leaders."
Peter McGahan at Worldwide Financial Planning explains that John Chatfeild-Roberts and his team couple comprehensive quantitative and interview-based qualitative research with their top-down view to create a portfolio of around 20 funds that currently includes, among others, First State Asia Pacific, Fidelity Special Situations, Invesco Perpetual Income and Jupiter Financial Opportunities.
"This fund has high conviction in its choices and has proven very consistent and successful," McGahan observes.
The three Cirilium multi-asset, multi-manager funds are part of the Henderson stable, although they are sold mainly through independent financial advisers.
They are able to invest globally in commodities, hedge funds, private equity and property as well as the more traditional asset classes of cash, bonds and equities, and aim for a combination of above-average returns with below-average volatility.
Raj Shah cites Cirilium Moderate as "a newcomer to my core funds, but Paul Craig, who manages all three funds, hasn't let the side down so far." The fund has a global remit and the only constraint is that it cannot hold more than 80% in equities.
Performance across the three funds has been impressive since they were launched in June 2008, with all three Cirilium offerings in the top quartile of their respective IMA sectors (cautious, balanced and active managed) over one month, six months and one year.
The Moderate fund produced a return of more than 40% over the year to the beginning of December.
This is an interesting example of a fund with such underlying quality that financial advisers are prepared to select it as their core growth holding even after the glitch in judgement by manager Robin Geffen that left its performance languishing in the bottom quartile of the IMA balanced managed sector over the year to date.
As Gordon Bowden explains: "Geffen was caught out with most of his fund in cash during the summer of 2009, and underperformed his rivals during the stock market recovery. He has invested since and needs to regain the type of performance that made this a top fund since its launch in 1998."
Shah takes a long view, pointing out that the fund compares well with the sector average of around 6% and that it has averaged "a steady 11% a year for the last five years, with positive returns over the last three years."
He adds: "Robin Geffen's fund forms part of my core fund choice for most of my clients - the mix of equities and bonds has produced a steady return over the medium to long term."
Geffen has recently refocused his attention on emerging markets, which seems to be paying off: towards the end of 2009 the fund reappeared in the top quartile.
FUNDS FOR LONG-TERM GAINS
Of course, it's hard to draw a line between core portfolio choices and specialist funds for long-term gains - you'd hope that any decent long-term holding, core or otherwise, would deliver decent and reliable long-term rewards.
But the funds in this subset are arguably less mainstream and involve more risk than those in the core group.
Standard Life UK Opportunities
This fund hovers at the top of the IMA UK all companies sector tables over all time periods: the 12 months to 1 December saw it in the top 10 with a meaty 58% return.
Colin Rothery of Throgmorton Financial Services is a fan. "Caspar Trenchard, who has managed this fund since 2007, holds a wide range of holdings - currently around 82 primarily small and medium- sized companies - yet still consistently delivers the goods," he comments.
It's a fairly flexible fund, although run in a different fashion from Trenchard's high-performing predecessor Mark Niznik.
Trenchard can invest up to 10% in the FTSE 100, and unlike Niznik he uses a "core and satellite" approach to ensure a mix of longer term and strategic holdings with more tactical short-term opportunities.
M&G Global Basics
This fund, run since 1995 by Graham French, takes an interesting slant on global equities and emerging markets in particular.
It focuses on the companies that are the building blocks for the new world economy: those in primary industries such as the extraction of raw materials, and those producing the kind of staple products such as washing powder and toothpaste that consumers will demand as living standards rise.
"These are essentials that we all need, and the demand in emerging economies is strong for such products. As a result, this fund has been less affected by recent global trends and this is reflected in its strong performance," comments Christine Morris.
French's fund is up 47% over the year to the end of November. Martin Bamford, another fan, points out that "it has also delivered first-quartile performance over the past one, three and five years".
M&G Global Basics is picked out by several others including Daniel Clayden at Clayden Associates, who also suggests using it "for children's investments if you're not taking a punt on emerging markets".
He adds: "This is a great fund for now, with equally strong potential for the future. It also has a competitive charging structure for an actively managed fund."
Ignis Hexam Global Emerging Markets
As Darius McDermott of Chelsea Financial Services observes, "emerging markets are no longer an investor's exotic afterthought."
McDermott points out that these markets have been so remarkably successful in recent years that they have now become a significant portion of many portfolios, with a specific focus on the hottest growth spots: the BRIC nations of Brazil, Russia, India and China.
"We maintain that emerging markets are still high-risk, but the shift in economic power from West to East is accelerating and these new economic powerhouses cannot be ignored.
Ignis Hexam Emerging Markets is a promising fund that is taking advantage of various themes from these markets," he adds.
Fund manager Bryan Collings believes valuations are attractive relative to Western markets and has therefore been increasing its exposure to Brazil, Russia and China.
Since its launch in February last year, the fund is up around 65%, but Mark Dampier at Hargreaves Lansdown warns that it is a "high-octane, risky fund', making it more suitable as a long-term holding.
Old Mutual UK Select Smaller Companies
Ben Yearsley, also of Hargreaves Lansdown, describes this fund as a "great long-term investment", but emphasises that although smaller companies have a greater chance of outperformance, they do come with higher risk attached.
"The Old Mutual smaller companies team, under the leadership of Daniel Nickols, is probably the best in the industry, having demonstrated considerable outperformance versus its peers over the last decade," he comments.
Over the past five years, the fund has returned an impressive 85% against the IMA UK smaller companies sector average of just 30% and the benchmark return of 50%.
Last year, there was a relative fall-off in performance, and Nickols and his team have fallen marginally behind the sector average with their 53% return.
However, in recent months, as the economic news has picked up, Nickols has been looking for companies that are likely to benefit from a profit recovery and these initiatives seem to be paying off, says Mark Dampier.
Artemis Strategic Assets
William Littlewood, who manages this recently launched fund, made his name in the 1990s managing the Jupiter Income fund, and, says Ben Yearsley, "is widely regarded as one of the best fund managers of his generation".
But the Strategic Assets fund is a departure from his old income mandate, as for the past nine years, he has been quietly involved with hedge funds and now brings this gamut of experience to use in the new fund.
It's what Yearsley describes as "a go anywhere and do anything fund, able to invest in equities, property, cash, gilts or commodities, in which it can go short or long as needs dictate." The aim is to outperform cash and equities over rolling three-year periods.
The fund launched in May 2009, so these are early days, but over the six months to 1 December it returned 14%, which is marginally below the IMA active managed sector average.
The multi-asset angle does not make it a particularly low-risk option, warns Yearsley. "You are effectively backing Littlewood's macro views on the market and the economy, and at times it will exhibit severe underperformance versus the market and peers," he says.
"So I would personally tuck this away for the long term and forget about it, and, in fact, this is exactly what I have done."
FUNDS FOR YOUR CHILDREN'S FUTURE
Clearly, a fund for the next generation implies a very long timescale of perhaps 18 years, and the question then becomes how you feel about taking risks with your children's investment.
For several advisers, a time frame of this length provides an excellent opportunity to tap into some of the biggest themes of today's world, such as emerging markets, natural resources and the environment, despite their potential for volatility over the short and medium term.
But, for others, it makes more sense to limit risk and keep money closer to home.
Invesco Perpetual High Income
"Given the term involved, I would recommend a solid UK equity fund with the aim of capturing the growth of the stock market over the longer term, but avoiding the extreme volatility traditionally associated with other geographical markets," comments Jennifer Storrow.
"To this end, I think the expertise of manager Neil Woodford will continue to reap rewards over the long term, and reinvested income can also contribute towards long-term growth."
The High Income fund, which currently yields around 4.25%, has roughly doubled over the past seven years. Admittedly, it has not had one of its finer years and was up only 15% to the start of December against the UK equity income and growth sector's gain of 26%.
That reflects Woodford's negative view on the economy and defensive positioning. However, as Ben Yearsley says: "Over almost 20 years Woodford has generated a high level of outperformance, and although he has had a poor patch for the past six months I have no doubt he will come good again."
First State Asia Pacific/Asia Pacific Leaders
"If you're investing for your children's future, you should look for long-term growth stories. A time line of maybe 18 years can unlock the full power of equity returns by smoothing out volatility and compounding returns," comments Darius McDermott.
"At the moment, we think emerging markets represent the most compelling long-term investment opportunity."
He suggests First State Asia Pacific or its close cousin, Asia Pacific Leaders, as a reliable means of tapping into the region's growth.
Stephen Willis likes the Leaders version; its three-year outperformance of the MSCI Asia Pacific Ex Japan index "is in no small part down to its stable management team led by Angus Tulloch, whose proven investment style and process remains largely unchanged," he says.
One aspect he particularly approves of is the fact that team members are encouraged to invest their own money in the fund.
The focus is on Asian and other emerging market companies with good balance sheets and strong management teams.
"Over the short term or in a bull market, this type of approach will probably underperform, but over the long run I would expect it to outperform, and the results certainly back this up," adds Ben Yearsley.
The fund has underperformed the sector over the past year, but over five years to early December it is up 150% against 118% for the sector.
Margetts Venture Strategy
This multi-asset fund of funds falls into the IMA active managed sector, where it has produced top-quartile performance over short and long time frames, including 45% in the past year alone (against the sector average of 28%).
The fund aims for long-term capital growth, but with a focus on growing income from dividend distributions.
According to Steve Laird, whose choice it is: "Manager Toby Ricketts takes a modern multi-asset approach to this global fund and has a track record of delivering above-average performance for below-average risk. He has consistently outperformed his peer group."
One attractive feature is that the total expense ratio (TER) is 1.6%, which isn't bad for a multi-manager fund. "High TERs can really damage long-terms returns when investing for children," Laird adds.
Robin Keyte at Towers of Taunton selects this fund as one for a child's portfolio.
As an ethically screened fund with a focus on companies making a positive contribution to the long-term protection of the environment, it's an appropriate choice for anyone thinking about the quality and sustainability of the world inherited by the next generation.
Keyte describes it as "a well-managed fund, as its managers also practise responsible share ownership", which means they aim to influence the policies and behaviour of the firms in which they invest.
Manager Charlie Thomas reports that the green investment thesis continues to be underpinned by heightened levels of investment by governments around the world and by the interest generated by the recent UN Climate Change Conference in Copenhagen.
However, he emphasises: "Our focus remains on companies with proven technology, strong balance sheets and robust business models, which should provide a degree of resilience regardless of the outcome in Copenhagen."
Jupiter Ecology has slipped to the fourth quartile over the past 12 months, reflecting the fund's focus on smaller companies, but over five years it has returned 56%, well outstripping the 34% sector average.
With a view to the very long term, Christine Morris recommends internationally highly diversified funds, including Jupiter Merlin Growth and Fidelity Wealthbuilder. The latter is a "fettered" fund investing only in Fidelity funds that are invested across a broad range of global markets.
To give some idea of the spread of investments involved, the top five holdings include Fidelity's Special Situations, European, South East Asia and America funds, providing exposure to the UK and US, Japan, Switzerland, China and Brazil, among many others.
One attraction is that with a TER of just 1.4%, Fidelity Wealthbuilder provides a relatively cheap route to very broad global exposure.
Such diversified coverage will never provide performance to shoot the lights out, as the fund has closely tracked that of the IMA global growth sector average, up 27% over 12 months and 32% over the past five years.
But it's fairly cheap, broad-based and steady, which, for many investors, is a good base on which to invest for their children's future.
This article was originally published in Money Observer - Moneywise's sister publication - in February 2010
A sophisticated absolute return fund that seeks to make money for its investors regardless of how global markets are performing. To that end, they invest in shares, bonds, currencies and commodities using a raft of investment techniques such as gearing, short selling, derivatives, futures, options and interest rate swaps. Most are based “offshore” and are not regulated by the financial authorities. Although ordinary investors can gain exposure to hedge funds through certain types of investment funds, direct investment is for the wealthy as most funds require potential investors to have liquid assets greater than £150,000m.
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.
Investment funds that invest in other investment funds from a wide range of asset managers and are often referred to as funds of funds. Some multi-manager funds only invest in the funds of the investment house providing the fund of funds and these are known as “fettered”. An “unfettered” multi-manager fund is free to invest in what the fund manager believes are the top performing funds from across different markets and industries. Investing in multi-manager funds means your risks are spread across geographical regions and industry sectors but it also adds another layer of charges and some multi-managers also levy an out-performance fee.
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.
Total expense ratio
Most investment funds levy an initial charge for buying the units/shares and an annual management fee but other expenses also occur in running the fund (trading fees, legal fees, auditor fees, stamp duty and other operational expenses) which are passed on to the investor and so the TER gives a more accurate measure of the total costs of investing. The TER is especially relevant for funds of funds that have several layers of charges. Unfortunately, investment fund companies are not obliged to reveal TERs and many only publish the initial charges and annual management charge (AMC).
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
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 bull market describes a market where the prevailing trend is upward moving or “bullish”. This is a prolonged period in which investment prices rise faster than their historical average. Bull markets are characterised by optimism, investor confidence and expectations that strong results will continue. Bull markets can happen as a result of an economic recovery, an economic boom, or investor irrationality. It is the opposite of a bear market.
An acronym, which stands for Brazil, Russia, India and China; countries all deemed to be at a similar stage of advanced economic development. The term was coined in 2001 in a report written by Goldman Sachs director Jim O’Neill who speculated that, by 2050, these four economies would be wealthier than most of the current major G7 economic powers.
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.
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.
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.
Annual management charge
If you put money in an investment or pension fund, you’ll not only pay a fee when you initially invest (see Allocation Rate) but also a fee every year based on a percentage of the money the fund manages on your behalf. Known as the AMC, the actual percentage varies according to the particular fund, but the industry average for active managed funds is 1.5%.
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.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.