Moneywise's First 50 Funds for beginners

Published by Moira O'Neill on 27 June 2016.
Last updated on 28 February 2018

First 50

When you start investing, choosing from thousands of funds can seem daunting.

To make your choice easier, Moneywise editor Moira O’Neill has updated her 50 favourite funds for beginners with seven new funds for 2018. Whether you’re looking for passive or active funds, she has options to suit you.

Moneywise’s First 50 funds, which we launched in July 2016 and then updated in July 2017, lists 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 returns may suffer if the fund manager makes a poor 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 This can be withdrawn, reinvested or simply held in your account.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 identify the fund on the investment platform 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 I reviewed and updated the list

My main considerations are a fund’s performance, charges and suitability for a beginner investor. I considered whether funds had been highly commended or won a Moneywise Fund or Investment Trust Award over the past year. I also considered our sister magazine Money Observer’s Rated Funds list for 2018, which includes 262 active and passive funds. Plus, I reviewed rated funds lists on platforms such as Moneywise’s parent company, Interactive Investor, and other DIY investment platforms. For the tracker funds, I consulted investment experts Peter Sleep at Seven Investment Management (7IM) and Laith Khalaf at Hargreaves Lansdown.

Why we dropped these seven funds from the First 50 list

Vanguard FTSE Developed World ex-UK Equity Index
It is similar to the L&G International Index Trust, but is more expensive and doesn’t have any emerging markets exposure.

Legal & General US Index
It’s very similar to the HSBC American Index. We introduced the Vanguard US Equity Index as a better diversifier.

Source Physical Gold P-ETC
We replaced this with the iShares Physical Gold ETC, which has slightly cheaper charges and delivers better performance.

LF Woodford Equity Income
The fund has performed badly and, even though its manager has a great long-term reputation, our decision to drop it quite simply came down to the 10% unquoted holdings in the fund that aren’t listed on a stock exchange. We think this makes it something that a beginner investor should avoid.

Man GLG Japan CoreAlpha
It has lagged its benchmark, the Topix index, over two years.

Newton Real Return
It has failed to beat its benchmark by a significant margin over three and five years.

Janus Henderson UK Property PAIF
The fund had to suspend trading between 5 July and 14 October 2016 when there wasn’t enough cash to deal with withdrawals after the Brexit vote on 23 June 2016. It hasn’t fully recovered from this – the Kames fund is a better bet.

First 50 Funds - the selection for 2018

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 2018 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.

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