Choosing from thousands of funds can be daunting for novice investors
To make it easier, Moneywise has a list of 50 top funds for beginners that we’ve updated with eight new funds for 2020.
Moneywise’s list of First 50 Funds for Beginners offers a good starting point for beginner investors looking to put together a balanced portfolio.
The selection, which we launched in July 2016 and update every year, includes index tracker funds, actively managed funds and investment trusts.
Index tracker funds are low cost and can be used to build a solid core for your portfolio. They are also known as passive funds because they simply aim to replicate the performance of a benchmark index, rather than trying to actively buy and sell stocks and shares to boost performance.
If you use trackers, you’ll never beat the index – but you also reduce the risk of performing worse than the index.
Active funds have the potential to perform better than index trackers, but there is the risk that the fund manager may make the wrong decision.
Many of these active funds have income and accumulation units, and you will need to buy the right version for your investment needs.
With income units, shown as ‘Inc’ in the fund name, any income is paid as cash. This can be withdrawn, reinvested or simply held in your account.
With accumulation units, shown as ‘Acc’ in the fund name, any income is retained within the fund; the number of units remains the same, but the price of each unit increases by the amount of income generated within the fund.
Generally, accumulation units offer a slightly more efficient way to reinvest income, although many investors will choose to hold income units and reinvest the income to buy extra units.
Many investors build a core of low-cost passive funds and then add active funds as ‘satellites’ around this to try
to add value.
We have included the ISIN identifier for each fund below – this is a unique number that will help you to identify the fund on the investment platform that you use.
The ongoing charges figure, or OCF, is the most accurate measure available of what it costs to invest in a fund. The OCF is made up of the annual management charge (AMC) levied by fund managers and other operating costs.
Note that you may have to pay an investment platform fee on top of this, depending on which platform you use to buy the funds.
How we reviewed and updated the list
Our main considerations are a fund’s performance, charges and suitability for a beginner investor. We considered whether funds had been highly commended or won a Moneywise fund or investment trust award over the past year.
We also considered our sister magazine Money Observer’s Rated Funds list for 2020, which includes 259 active and passive funds.
Plus, we reviewed rated funds lists on platforms such as Moneywise’s parent company, interactive investor, and other DIY investment platforms. We also consulted ii’s fund analyst, Teodor Dilov.
Why we dropped these eight funds from the First 50 list
L&G UK Index Trust C Dist or I Acc
Its replacement, Fidelity Index UK P, is a similar offering, but is cheaper at 0.06% versus 0.1%.
Legal & General Short Dated Sterling Corporate Bond Index I Inc or Acc
Has been dropped from Money Observer’s Rated Funds list.
Marlborough UK Micro-Cap Growth Fund P Acc
Has been dropped from MO’s Rated Funds list due to concerns over its size given the small and micro firms it invests in. It has assets of around £1 billion.
Fidelity American Special Situations W Acc
Has lost its MO Rated Fund status as MO has lost conviction after a prolonged period of underperformance. Morningstar also stripped it of its bronze rating in 2019.
BlackRock Corporate Bond D Inc or Acc
Was cut by MO as its 2.3% yield last year was the weakest pure corporate bond fund in its selection.
Fidelity Global Property W
Was replaced by MO with Schroder Global Cities Real Estate, which it sees as a more compelling proposition.
BMO Global Smaller Companies (BGSC)
Its replacement Edinburgh Worldwide IT has performed better in recent years and is a MO Rated Fund 2020.
Picton Property Income (PCTN)
Converted to a real estate investment trust and gave up its membership of the Association of Investment Companies.
First 50 Funds - the selection for 2020
For ease of use, we have divided the First 50 Funds selection into three parts:
20 cheap tracker funds to use as core holdings
The best ‘fire and forget’ funds. Use these if you want no-nonsense, cheap investing.
20 active funds to add value
If you want a manager to sit down and pick the shares and bonds that they think will perform best, make sure you look at these.
10 investment trusts for starters
Investment trusts possess unique qualities that make them worth considering by anyone investing over the longer term, but they can be riskier than funds.
Create portfolios from the First 50 Funds
We also show how you can start investing for income or growth by combining the funds in the selection.
Turn First 50 into a potent portfolio
Moira O'Neill shows you how to build an income or growth portfolio using the funds covered above.
Easy tracker fund portfolios for 2019 and beyond
We explain how beginner investors can use the tracker funds in Moneywise’s First 50 Funds to construct simple, low-maintenance investment portfolios.