This year’s winning funds across 12 popular sectors offer investors the perfect combination of good value and consistent high performance.
Whether you are saving for your future or want to provide a nest egg for your children, the right investment fund can go a long way in helping you achieve your savings goals.
Investment funds offer a cheap and hassle-free way of investing in a portfolio of shares, with the benefit of an expert fund manager to run it on your behalf.
However, with thousands on offer, investing in a diverse range of countries and sectors with different aims, it can be a tough call finding the right one (or ones) for you.
The Moneywise Fund Awards 2017 will help you make the right choices. Rather than just singling out those funds that have topped the performance tables over the past year, our awards highlight funds that have proved they are able to deliver good returns consistently over longer periods. Plus, we have paid close attention to charges.
UK All Companies
WINNER: Old Mutual UK Mid Cap*
Manager: Richard Watts
Ongoing charge: 0.85%
Value of £1,000 invested five years ago: £2,634 (163%)
Highly commended: Unicorn UK Growth
Commended: Marlborough UK Multi Cap Growth*, Threadneedle UK Mid 250
Since 2014, UK All Companies has been the worst selling Investment Association (IA) fund sector. The IA sectors divide funds into groups that invest in similar asset types, so investors can compare funds in one or more sectors before looking in detail at individual funds.
But while it remains unloved, UK All Companies houses a diverse array of funds and management styles and is home to some hidden gems. And it is those funds that invest in medium and smaller-sized companies (also called mid- and small-caps) that have come out on top.
Gavin Haynes, managing director of Whitechurch Securities, explains: “When sterling collapsed after the EU referendum, it was blue-chip stocks with overseas earnings that were the big winners. But, in 2017, as the UK economy proved more resilient than was feared, the more domestically focused medium and smaller UK companies have outperformed.”
Taking the award for the second year in the row is Old Mutual UK Mid Cap*, which is also one of Moneywise’s First 50 Funds.
Commenting on its performance, Tony Lawrence, investment manager at 7IM, says: “The Old Mutual UK Mid & Small Cap team is one of the more well-resourced and stable groups on the scene. The Mid Cap fund is overseen by Richard Watts, who expertly translates the team’s idea generation into a portfolio of stocks that consistently adds alpha. Large positions in stocks such as Boohoo.com and Fevertree have certainly provided a boost to performance over the past 12 months.”
The runner-up this year is Unicorn UK Growth – an option for investors who are willing to take more risk with their money.
Mr Haynes says: “Unicorn UK Growth focuses on smaller companies in the UK, and investors should appreciate that this fund may be higher risk than the typical UK equity fund. But the focus towards more domestic areas of the stock market has seen it recover strongly in 2017 and provide strong outperformance.”
UK Smaller Companies
WINNER: Axa Framlington UK Smaller Companies
Manager: Dan Harlow
Ongoing charge: 0.84%
Value of £1,000 invested five years ago: £2,511 (151%)
Highly commended: TB Amati UK Smaller Companies
Commended: Old Mutual UK Smaller Companies, Marlborough UK Micro Cap Growth*
Look at the returns posted by the top smaller companies’ funds and it can make for a very tempting proposition. However, investors need to be aware of the risks associated with the sector, which are tightly linked to the health of our own domestic economy.
Dzmitry Lipski, investment analyst at Interactive Investor (Moneywise’s parent company), says: “Small-cap equities have strongly outperformed large-cap equities since the financial crisis, but could be more at risk if the UK economy slows further as Brexit negotiations drag on. This outperformance is mainly attributed to the fact that smaller companies are typically under-researched, under-invested, and less efficient than the market for large-caps and, therefore, could yield superior returns over the longer term.”
Taking pole position this year is last year’s runner-up, Axa Framlington UK Smaller Companies.
Darius McDermott, managing director of Chelsea Financial Services, says: “This fund hasn’t missed a beat since Dan Harlow returned to manage the fund in the middle of 2016.”
Mr Harlow previously managed the UK Smaller Companies fund from 2010 to 2011.
“The fund’s GARP (growth at a reasonable price) style has worked particularly well in the smaller companies’ space and the fund has very consistently been among the top performers,” adds Mr McDermott.
Trading places, last year’s winner is this year’s runner-up, TB Amati Smaller Companies.
Mr Lipski says: “The fund is managed by a strong trio, Paul Jourdan, Douglas Lawson and David Stevenson, with an aim to provide ‘a fund for all seasons”.
While the fund focuses on companies with market caps below £500 million, it can move up the market-cap scale to manage liquidity.”
Liquidity can be a real challenge to smaller companies’ funds – indeed many have had to close their doors or increase charges for new investors to stop them becoming too big.
UK Equity Income
WINNER: MI Chelverton UK Equity Income*
Managers: David Horner and David Taylor
Ongoing charge: 0.88%
Value of £1,000 invested five years ago: £2,183 (118%)
Highly commended: Unicorn UK Income
Commended: Man GLG UK Equity Income, Royal London UK Equity Income
With savings rates remaining at rock bottom, funds that can deliver a growing income are a popular choice among investors.
However, performance in the sector has slipped when compared to the UK All Companies sector and those that have shone are those that have searched for higher returns. Before investing, it is important to be aware that funds investing in smaller companies will be riskier than those that focus on larger companies.
Commenting on our winner, MI Chelverton UK Equity Income*, a member of the Moneywise First 50 Funds, Mr McDermott says: “This multi-cap fund has correctly positioned itself away from struggling mega caps, preferring to invest in small- and mid-cap stocks which have been growing their dividends. Combined with excellent stock selection, the result is a fund that has by far the strongest performance in the IA UK Equity Income sector over the past five years.”
Coming in second place is Unicorn UK Income. Mr Lipski says: “This fund has been managed by Simon Moon and Fraser Mackersie since June 2014, to provide rising income from a concentrated portfolio of smaller companies. It aims to deliver a gross yield at least 10% greater than the yield produced by the FTSE All-Share Index.”
Mixed Investment 20%-60% Shares
WINNER: Axa Global Distribution
Manager: Matthew Huddart and Jamie Forbes-Wilson
Ongoing charge: 0.8%
Value of £1,000 invested five years ago: £1,540 (54%)
Highly commended: Royal London Sustainable Diversified Income
Commended: Invesco Perpetual European High Income, Axa Ethical Distribution, M&G Episode Allocation
Funds in this sector invest between 20% and 60% of their cash in equities, with the remainder invested in cash or fixed-interest investments such as gilts and corporate bonds. This makes them more suited to cautious investors who want to limit their exposure to the stock market. Our winner is last year’s runner-up, Axa Global Distribution.
Commenting on its impressive performance, Mr McDermott says: “Matthew Huddart and Jamie Forbes-Wilson recently took over this fund in 2017. This fund has delivered exceptionally strong relative performance. It has more than doubled the returns of sector average over the past 10 years.”
Royal London Sustainable Diversified Income is our highly commended choice.
Mr McDermott is not short of praise for the fund: “It has an incredibly consistent track record, having beaten its benchmark in every calendar year since its launch. It has delivered returns comparable to equities, but with substantially less risk.”
Mixed Investment 40%-85% Shares
WINNER: Royal London Sustainable World
Manager: Mike Fox
Ongoing charge: 0.77%
Value of £1,000 invested five years ago: £1,893 (89%)
Highly commended: Baillie Gifford Managed
Commended: BlackRock Consensus 85
This mixed asset fund sector used to be known as ‘balanced managed’ and with stock market exposure lying between 40% and 85% it suits investors who value the benefits of diversification but are prepared to invest more on the stock market.
Adrian Lowcock says: “Funds within this sector differ markedly from each other and as a result will perform differently. Over the past 12 months, [funds with] greater exposure to shares will have benefited as equity markets rallied, while bonds fell back due to expectations of interest rate rises.”
For the second year on the trot our winner is Royal London Sustainable World trust, which also has an ethical mandate. According to its latest factsheet, it is 82% invested in equities – so close to the maximum permitted by the sector.
Mr Haynes says: “The fund has provided attractive capital growth through investment in a globally diversified portfolio, predominantly in equities with some fixed interest securities and cash. Mike Fox is head of sustainable funds at Royal London Asset Management and has managed the fund since 2003 with impressive returns. The focus is on long-term themes and trends such as infrastructure or changing demographics with emphasis on active management and focused high-conviction best ideas.”
Baillie Gifford Managed takes second place.
Mr Haynes adds: “This fund has been a strong performer and has a track record stretching back 30 years. The team take a long-term approach with a typical asset mix of 75% equities, 20% bonds and 5% cash. Charges are very competitive.”
WINNER: Axa Framlington Managed Income
Manager: George Luckcraft
Ongoing charge: 0.59%
Value of £1,000 invested five years ago: £1,519 (51%)
Highly commended: Baillie Gifford Corporate Bond
Commended: Royal London Sterling Extra Yield, Artemis High Income, PIMCO Diversified Income
This is a fixed-interest category, where managers have a fewer restraints than the conventional corporate bond sector. Funds in this sector will have more opportunities to get higher yields in a low interest rate environment. The funds may, however, be higher risk as a result so it is important to check the strategies employed by your chosen fund before you invest.
Mr Haynes says: “2017 was a more challenging year for investing in bond markets, with government bonds providing disappointing returns. Investors were rewarded for taking on risk with high-yield and emerging markets bonds performing particularly well.”
Our winner is Axa Framlington Managed Income.
Mr Haynes says: “George Luckcraft has provided impressive returns over the past year with a favour for bonds of financial companies boosting performance. With income hard to find, the more than 4% yield is attractive.”
In second place is last year’s winner, the Baillie Gifford Corporate Bond fund.
Mr Haynes adds: “The Corporate Bond fund aims to produce a high level of monthly income through a portfolio of 60 to 80 corporate bonds. It is a highly active portfolio of the manager’s best ideas with a mix of investment-grade and high-yielding bonds.”
WINNER: Henderson Global Care Growth
Manager: Hamish Chamberlayne
Ongoing charge: 0.84%
Value of £1,000 invested five years ago: £2,070 (107%)
Highly commended: F&C Responsible Global Equity
Commended: Royal London Sustainable World, Standard Life Investments UK Ethical, Eden Tree Amity European
Some investors like to invest in line with their morals and beliefs and so will try to avoid companies, which are considered to do harm. Ethical funds will, therefore, not invest in some sectors, such as tobacco, and typically have lower, or no, weightings in others like oil and gas.
“This means there is more focus on those sectors where they are able to invest, and their comparative performance is often dictated by how the sectors they hold perform compared with those which they don’t,” notes Patrick Connolly, chartered financial planner at IFA Chase De Vere.
The winner this year is Henderson Global Care Growth.
Mr McDermott says: “This fund believes sustainable, well-managed businesses are best placed to create long-term shareholder value. Environmental, social and governance factors are at the heart of the process and the fund has been a top performer since Hamish Chamberlayne took over in 2013.”
Coming in second place is F&C Responsible Global Equity, which was previously part of the Friends Provident Stewardship range, which was the forerunner in the ethical investing movement.
Mr Connolly says: “It adopts a positive-based approach, investing in growth companies that make a positive contribution to society and the environment, such as those engaged in energy efficiency, responsible banking and healthcare. The fund benefits from strong ethical teams and processes and is a good choice for those who want to align their investment approach with their ethical and environmental beliefs.”
WINNER: Baillie Gifford Global Discovery
Manager: Douglas Brodie
Ongoing charge: 0.77%
Value of £1,000 invested five years ago: £2,595 (159%)
Highly commended: Old Mutual Global Equity
Commended: Goldman Sachs Core Equity, Fundsmith Equity*
“Providing you can accept the currency risks associated with investing overseas, investing in global funds provides compelling growth opportunities and diversifies risk from the UK stock market,” says Mr Haynes.
Different funds will focus on different regions, so it’s important not to assume that funds cross all over the world. They may focus on smaller or larger companies or home in on different industries, as is the case with our winner, Baillie Gifford Global Discovery. It has more than 50% of its assets invested in the US and just over 20% in the UK.
Mr Haynes says: “This fund concentrates on smaller businesses with high growth potential with a specific focus on technology and cutting-edge health care businesses. Although this puts it at the higher end of the risk spectrum, the returns generated by fund manager Douglas Brodie have been very impressive.” In second place is Old Mutual Global Equity, which Mr Haynes says is a good one-stop shop for investors.
“The Old Mutual fund has continued to perform well over the past year to extend its strong record. This is a highly diversified fund that invests in 500 stocks with selection driven by a quantitative screening process, looking at a wide range of factors to select stocks. It provides a good choice for investors seeking broad overseas exposure for the first time,” he explains.
Global Emerging Markets
WINNER: Goldman Sachs Emerging Markets Core Equities
Manager: Team managed
Ongoing charge: 0.87%
Value of £1,000 invested five years ago: £2,463 (146.3%)
Highly commended: Baillie Gifford Emerging Markets Growth
Commended: Invesco Perpetual Global Emerging Markets, Fidelity Emerging Markets*, Baillie Gifford Emerging Markets Leading Companies
“This is a high-risk and volatile sector, but it is an important one because it gives investors access to developing economies, such as China and India, and companies which have the potential to perform strongly in the years and decades ahead,” says Mr Connolly.
However, our winner, Goldman Sachs Emerging Markets Core Equities, has proved it can make money during good times and bad. Mr Connolly explains: “Goldman Sachs is a huge financial services company and has significant investment research resources. It takes a team approach to managing investments and this fund, using its Computer Optimised Research Enhanced Process, has been a strong performer both when markets are going up or down. The firm has recently lost the head of its emerging markets team but, because of its team-based approach, still has a strong proposition.”
The runner-up in this category is Baillie Gifford Emerging Markets Growth.
Mr Lipski says a well-respected team runs this fund: “The team invests over the longer term in emerging market stocks in different sectors that can grow faster than the market and are underestimated by other investors. Strong research capabilities and strong past performance make the fund a good option for long-term investors to gain exposure to emerging markets.”
Asia Pacific Ex Japan
WINNER: Invesco Perpetual Asian
Manager: William Lam
Ongoing charge: 0.9%
Value of £1,000 invested five years ago: £2,041 (104%)
Highly commended: Fidelity Asia
Commended: BGF Asian Dragon, Investec Asia Ex Japan
“The sector has, until last year, been out of favour among investors as they remained wary of the global recovery continuing to remain cautious as the West eases its way out of the financial crisis,” says Mr Lowcock. “However, Asia has begun to appeal to investors again. The region has strong growth and will benefit from a global recovery and a weaker US dollar. Asia gives access to a young and growing population.”
Our top fund in this sector is Invesco Perpetual Asian. Although the fund has a new manager at the helm, he is not new to the fund and has been key to its impressive performance over the past two years.
“Manager William Lam took over sole responsibility for this fund in May 2017, having co-managed it since April 2015,” explains Mr Lowcock. “His main responsibility has been stock selection, which has been the main driver of outperformance. This stock selection is combined with thorough top-down economic insight, which has consistently provided guidance on what areas to focus on. The fund has typically favoured steady, large-cap franchises and market leaders. The fund’s exposure to Chinese tech companies has also helped boost performance.”
Coming in second place is Fidelity Asia.
“Fidelity has a well-resourced team providing wide coverage of Asian markets. Teera Chanpongsang took over as lead manager in 2014 and has maintained a focus on investing in high quality sustainable business models that has been important in the strong returns generated by this fund,” says Mr Haynes.
Europe Ex UK
WINNER: Man GLG Continental European Growth*
Manager: Rory Powe
Ongoing charge: 0.9%
Value of £1,000 invested five years ago: £2,889 (188%)
Highly commended: Marlborough European
Commended: Baillie Gifford European, FP Crux European Special Situations, BlackRock European Dynamic
Our experts agree that an investment in Europe should not be overlooked.
“For a long time, Europe was the sick economy, struggling with political instability, low growth and deflationary pressures,” says Mr Lowcock. “But, in 2017, that has all changed and the region is showing solid low growth.
“Market valuations are no longer significantly discounted to the US, but the region is further behind in its recovery giving Europe the potential for a greater boost in corporate earnings, which we have already seen this year. Political issues are never far away in Europe, but they have so far had little impact on business.”
Mr Haynes agrees: “This region has been one of our favoured investment areas and we believe offers strong opportunities for stock pickers.”
For the second year in a row, Man GLG Continental European Growth* takes the crown.
Mr Lowcock says: “This fund is managed by veteran European equity investor Rory Powe. He seeks out growth companies in Europe, which are well positioned to maintain their earnings or have the scope to grow profits. The fund does not track the benchmark. Mr Powe looks for two types of companies: established leaders with strong balance sheets and clear revenue growth objectives and established winners, which should display clear, competitive advantages, rapid revenue growth and understated market values.”
The runner-up is Marlborough European. “The fund has been managed by David Walton since 2013, and has produced exceptional performance,” notes Mr Haynes. “The fund will invest from mega-caps to micro-caps, but the focus of the portfolio is very much on smaller and medium-sized companies.
Mr Walton has a favour for owner-manager businesses, where the growth potential is not recognised by the market.”
WINNER: Old Mutual North American
Manager: Team managed
Ongoing charge: 0.95%
Value of £1,000 invested five years ago: £2,644 (164%)
Highly commended: Baillie Gifford North American
Commended: JPM US Select Equity, JPM American Equity, Goldman Sachs US Core Equity Base
This is one economy that Mr Connolly says all investors should have some exposure to.
“The US market is too big for people to ignore,” he says. “It has the largest stock market and economy in the world and is home to many of the most innovative companies, including the likes of Apple, Microsoft and Amazon. It is also likely to be home to many of the next generation of market-leading companies.”
And while shares are looking expensive, Mr McDermott says: “North America continues to defy disbelievers and rise ever higher.”
The winner for the second year in a row is Old Mutual North American. Mr Connolly adds: “This is a sector where active managers notoriously struggle to outperform, yet this fund is consistently achieving that without taking excessive risks. The fund managers have an unconstrained investment style, which looks at taking advantage of price anomalies and at the same time they manage a very well diversified portfolio. This is a good-quality core US fund.”
Our runner-up is Baillie Gifford North American. Mr McDermott says: “This high-growth fund has delivered strong performance in this difficult sector. The fund’s low ongoing charge of just 0.52% is also highly commendable. This is another Baillie Gifford fund which has delivered excellent value for its clients and continues to prove the value of active funds.”
Note: Performance figures as at 6 November 2017..
* Denotes a Moneywise First 50 Fund for beginner investors.
To decide the winning funds, we took the top 20 retail funds over three years and aggregated their performance over three, five and where possible, seven years. We ruled out funds that took excessive risks or had higher charges. Thanks to Morningstar for providing the data.