By pooling together money from lots of individuals, investment funds make it cheaper and easier for the average person to make money on the stock market. In addition to economies of scale, you also get the benefit of an expert fund manager to make all those difficult decisions about what to buy and when to sell.
Yet with so many funds to pick – investing in diverse companies in different countries or regions and with different objectives – making the right choice can be a tough call.
Whether you are putting money away for your future, saving for your children or simply wanting to give your pension a boost, the Moneywise Fund Awards 2018 are a good place to start.
The Moneywise Fund Awards don’t highlight those funds that have shot the lights out over the past year; instead we have analysed performance across three, five and seven years to ensure that our winners and runners-up have successfully delivered consistent high returns.
At Moneywise, we also think it is important that you don’t pay over the odds to invest so we have screened out any funds charging more than 1% in fees.
UK ALL COMPANIES
Winner: Merian UK Mid Cap*
- Manager: Richard Watts
- Ongoing charge: 0.85%
- Value of £1,000 invested five years ago: £2,090 (109%)
Highly commended: Marlborough UK Multi Cap Growth
Funds in this rather broad sector must invest 80% of their assets in the UK stock market and have a focus on growth. The worst selling sector since 2014, UK All Companies clearly isn’t setting investors’ hearts alight. ‘All Companies’ may appear dull alongside racier smaller company funds, or not as focused as a UK equity income fund.
With more than 250 funds to choose from, it’s also easy for investors to be overwhelmed.
However, Gavin Haynes, managing director at Whitechurch Securities, reckons this sector is actually home to some excellent active fund managers.
He says: “Despite a relatively challenging environment for UK companies since the Brexit vote, the sector has returned over 20% over three years, and good fund managers have proven there are attractive opportunities for UK stocks. The significant outperformance from the winning funds demonstrates why active management has a part to play when looking for UK equity exposure.”
While you may not recognise the name of our winner, Merian UK Mid Cap, it actually takes the award the third consecutive year.
Mr Haynes says: “While not a name familiar to many fund buyers, this is a rebrand of the Old Mutual fund that has been a long-term ‘go-to’ choice for fund pickers seeking exposure to Mid-250 UK stocks.
“Fund manager Richard Watts has continued to prove his worth as an excellent stock-picker, focusing on companies with growth potential that are being overlooked.”
The fund is also a Moneywise First 50 Fund – our carefully curated list of funds for beginner investors.
Taking runner-up position is Marlborough UK Multi Cap Growth.
Mr Haynes says: “As the name suggests, this fund invests across the market spectrum, investing in large, medium and smaller UK companies. It has been managed by Richard Hallett since 2005, and he has significantly outperformed the UK stock market through seeking out exciting growth businesses.”
Merian, a rebrand of Old Mutual, has been a “go-to choice for fund pickers”
UK EQUITY INCOME
Winner: MI Chelverton UK Equity Income
- Managers: David Horner and David Taylor
- Ongoing charge: 0.86%
- Value of £1,000 invested five years ago: £1,658 (66%)
Highly commended: Schroder Income
Funds in this sector invest in UK companies that have a track record of paying reliable dividends. This makes them a popular choice for retired investors who are looking to generate an income from their investments. However, they can also be a great boon for savvy growth investors who reinvest dividends.
“The UK remains one of the most attractive markets in the world for investors seeking dividend-producing shares,” says Mr Haynes. “Although many investors are worried about stock-market valuations after a decade of rising markets, I think there is still scope for UK dividend stocks to perform well with the UK stock market yielding close to 4%. I see little scope for UK rates to rise meaningfully for some time, which should support demand for UK dividend stocks.”
The winner for the second year on the bounce is MI Chelverton UK Equity Income – another Moneywise First 50 fund.
“The managers, David Taylor and David Horner, select stocks by analysing the balance sheet and focus on the business model. The team is experienced, has a good, solid track record and demonstrates a thorough understanding of both the companies it invests in and the wider market environment. The fund targets a 4% yield and invests primarily in small and mid-sized companies with a minimum market capitalisation of £50 million,” says Adrian Lowcock, head of personal investing at Willis Owen. He adds that this focus on smaller companies also means there is plenty of opportunity for dividends to grow.
Coming in second place is Schroder Income. Its managers, Kevin Murphy and Nick Kirrage, have a strict, value-driven approach. This means the portfolio is skewed towards sectors and stocks that are unloved and undervalued. Although this can make the fund more volatile than some of its peers, Mr Haynes says it’s “a sound choice for investors seeking attractive income and growth potential from UK stocks”.
UK SMALLER COMPANIES
Winner: Merian UK Smaller Companies Focus*
- Manager: Nick Williamson
- Ongoing charge: 0.83%
- Value of £1,000 invested five years ago: £2,702 (170%)
Highly commended: TB Amati UK Smaller Companies*
The performance of funds in this category are tantalising for any investor. However, by only investing in the UK’s smallest firms (bottom 10% by market capitalisation) they are also very high risk. This means they only suit those investors who have time and savings elsewhere to cope with the inevitable ups and downs of this market.
“Smaller companies offer plenty of exciting but higher-risk investment opportunities,” says Mr Lowcock. “This area of the market is under-researched, which means that fund managers can often identify hidden gems that are under-appreciated by the wider market. Stock selection is critical in this areas of the market as is portfolio discipline.”
Our winner this year is Merian UK Smaller Companies Focus.
Commenting on the fund, Mr Lowcock says: “Manager Nick Williamson is a member of the successful Merian UK smaller companies team and has had an excellent start to managing this fund, since he took over in January 2016. He uses the Merian approach of combining economic outlook with stock selection and input from experienced analysts. Mr Williamson is willing to be active and take advantage of shorter-term price movements.”
For the second consecutive year, TB Amati UK Smaller Companies is highly commended. Mr Haynes likes the fact that the fund has not grown too large.
“Manager Paul Jourdan and his team have produced some outstanding returns, seeking out small companies that have exciting growth prospects. The fund is only around £200 million in size, so it is nimble enough to buy meaningful positions in smaller businesses.”
MIXED INVESTMENT 20%-60% SHARES
- Manager: Mike Fox
- Ongoing charge: 0.75%
- Value of £1,000 invested five years ago: £1,552 (55%)
Highly commended: AXA Global Distribution
“This sector provides access to multi-asset funds that will typically invest in a mix of shares and bonds (and sometimes other asset classes),” explains Mr Haynes.
“The funds provide diversification and can be a good starting point for investors with a balanced risk profile who want the opportunity of cash beating returns but do not want to expose all their money to the vagaries of the stock market.”
Stock-market exposure in this sector is restricted to a minimum of 20% and a maximum of 60%.
Royal London Sustainable Diversified Trust is this year’s winner.
“This fund has produced solid returns through investing in a well-diversified global equity and bond portfolio. This is a good choice for a balanced investor and is managed by a well-resourced team headed up by the experienced Mike Fox,” remarks Mr Haynes.
Coming in second place is last year’s winner, AXA Global Distribution.
Mr Lowcock says: “The fund is designed for cautious investors to gain exposure to global equities and inflation-proof bonds. The process follows an economic outlook that determines strategic asset allocation. The managers look for companies that have stable, sustainable and reliable revenue streams and high barriers to entry. A focus on the US and, more recently, technology stocks have helped drive performance.”
Multi-asset funds typically invest in a mix of shares and bonds
MIXED INVESTMENT 40%-85% SHARES
Winner: Royal London Sustainable World Trust*
- Manager: Mike Fox
- Ongoing charge: 0.77%
- Value of £1,000 invested five years ago: £1,900 (90%)
Highly commended: Baillie Gifford Managed
“This sector also provides access to multi-asset funds that will typically invest in a mix of shares and bonds (and sometimes other asset classes),” says Mr Haynes. “The emphasis of funds in this sector is to have most of their money committed to the stock market, so it’s suitable for investors with a higher tolerance for risk.”
Between 40% and 85% of shares must be invested in shares.
Taking the award for an impressive three years in a row is Royal London Sustainable World Trust.
Mr Haynes says: “The fund is another offering from Mike Fox, who is head of Sustainable Funds at Royal London. He has managed the fund since 2003 with impressive returns. It has provided attractive capital growth through investment in a globally-diversified portfolio, predominantly in shares with a small portion in bonds and cash to dampen the risk.”
This year’s highly commended, Baillie Gifford Managed, takes the accolade for the second year in a row.
Mr Lowcock says: “The fund is run on a team basis with different managers contributing to stocks in each region. This approach aims to identify companies they believe have good long-term growth and are likely to sustain a competitive advantage. The fund has tended to perform particularly well in rising markets, helped by a healthy weighting to shares. A combination of stock selection and the fund managers’ allocation to global stock markets has added value over the long term.”
UK STRATEGIC BONDS
- Manager: Eric Holt
- Ongoing charge: 0.58%
- Value of £1,000 invested five years ago: £1,486 (49%)
Highly commended: Artemis High Income
“The strategic bonds sector is the most flexible bond sector and allows managers to freely express their views of the bond markets,” explains Mr Lowcock.
However, while this means they might be better placed to generate yields in a low-interest-rate environment they may also be higher risk than other fixed-interest funds, a popular staple for cautious investors.
This year’s winner is Royal London Sterling Extra Yield. It is a higher-risk choice, but its performance is consistently impressive.
Mr Lowcock says: “Manager Eric Holt runs this fund from a bottom-up perspective and prefers to conduct his own fundamental analysis instead of relying on rating agencies in order to identify undervalued assets.
There is a focus on unrated investments, which are often ignored by other managers and differentiates the fund from other UK corporate bond funds, but also means this fund is riskier and more akin to a high-yield bond fund.”
Artemis High Income is our runner-up in this category.
Mr Haynes says: “This fund is managed by Alex Ralph, who has produced impressive returns over the long term and outperformed the peer group over one, three and five years. The fund provides an attractive yield of around 5% and currently favours investing in bonds issued by financial companies.”
Winner: F&C Responsible Global Equity
- Manager: Jamie Jenkins
- Ongoing charge: 0.8%
- Value of £1,000 invested five years ago: £2,020 (102.32%)
Highly commended: Janus Henderson Global Sustainable Equity
Darius McDermott, managing director at Chelsea Financial Services, says the ethical sector has really started to gain traction – partly due to strong performance, but also because more people want to see businesses behave in the most appropriate ways.
He explains: “Ethical investing has actually been around in the UK for 30 years or so. It started with negative screening: avoiding companies that are involved in ‘bad’ business, such as tobacco and animal testing. Then came positive screening, where companies with good environmental, social and governance practices are favoured. Today the third generation of ‘responsible investing’, impact investing, is making its mark. Importantly, the positive impact made by a company is deliberate and measurable.”
Taking the award this year is F&C Responsible Global Equity.
Patrick Connolly, independent financial adviser at Chase De Vere, says this fund was previously part of the Friends Provident Stewardship range, which was the forerunner for many of the ethical funds available today.
“It adopts a positive-based approach, investing in growth companies, which 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.”
Runner-up this year is Janus Henderson Global Sustainable Equity. Mr McDermott says: “Hamish Chamberlayne, head of socially responsible investment, has run this fund since 2013. Performance has been helped by its weighting to US tech stocks of late and it has outperformed in a difficult sector.”
Ethical investing has started to gain traction
Winner: Baillie Gifford Global Discovery
- Manager: Douglas Brodie
- Ongoing charge: 0.78%
- Value of £1,000 invested five years ago: £2,390 (139%)
Highly commended: Fundsmith Equity*
“The major benefit of this sector is that investors can achieve a good level of diversification in global stock markets with a relatively small investment. It can be a good choice for ‘buy and hold’ funds, which make them suitable for long-term investments such as pensions, savings for children or for investors who don’t want to be actively involved in monitoring their investments on a regular basis,” says Mr Connolly.
However, funds in this sector offer access to a vast array of funds. Some are broad based and diversified, while others focus on specific regions or industrial sectors. This means investors need to know what they are buying before they invest.
Baillie Gifford Global Discovery, our winner for the second year in a row, is heavily skewed to the US with approximately 60% of its holdings, followed by the UK at nearly 20%. Japan comes in third but accounts for less than 5% of the portfolio.
Mr Connolly says performance has been impressive but adds that investors must have a good appetite for risk.
“This fund has performed really strongly by investing in worldwide companies that offer significant growth prospects, operating in industries that have the potential for structural change and innovation, such as healthcare and information technology. The fund has produced consistent outperformance in rising markets, but with a focus on investing in smaller companies it could be susceptible to significant falls and volatility in more challenging times.”
Fundsmith Equity, a Moneywise First 50 fund, is our runner-up.
Mr McDermott says: “The fund invests in high-quality, well-established larger companies. ‘We do not seek to find tomorrow’s winners – rather, to invest in companies that have already won,’ says manager Terry Smith. He likes resilient businesses that have high returns on equity and whose advantages are difficult to replicate. It has done extremely well for investors.”
“Global can be a good choice for ‘buy and hold’ funds”
GLOBAL EMERGING MARKETS
- Manager: Mike Gush
- Ongoing charge: 0.79%
- Value of £1,000 invested five years ago: £1,790 (79%)
Highly commended: Baillie Gifford Emerging Leading Companies
Global emerging markets funds focus on economies in the developing world: economies with a growing workforce and an expanding middle class. Countries you can expect to feature include China, India, Brazil, Mexico and Thailand. Experts agree the long-term growth potential is sound, but investors need to be prepared for a bumpy ride.
“This sector has had another roller-coaster year in terms of performance,” says Mr McDermott. “A rally in Asian tech stocks helped in the earlier part of the year especially, but the whole region has been hindered by ongoing trade war fears, geopolitical uncertainty and a strong US dollar. It’s never a boring place to invest, but good stock selection is really important.”
Our winner, Baillie Gifford Emerging Markets Growth, does just that.
Mr McDermott adds: “This fund has a growth style that has been in favour. It’s concentrated and the managers have a very long-term view, focusing on stock selection and ignoring the short-term noise of the market.”
Proving its success in this sector, Baillie Gifford also takes runner-up position in this category with the Baillie Gifford Emerging Markets Leading Companies fund.
Mr Connolly says: “This fund is run by the same desk and uses the same investment process as the Baillie Gifford Emerging Markets Growth fund. The major difference is that this fund invests just in large companies, rather than adopting a multi-cap approach.”
ASIA PACIFIC EX JAPAN
Winner: Merian Asia Pacific
- Manager: Mike Servent
- Ongoing charge: 1%
- Value of £1,000 invested five years ago: £1,970 (97%)
Highly commended: Invesco Asian
This is a diverse region from an investment perspective, including large developed economies such as Singapore, Australia and Hong Kong, as well as more developing markets including China, India, Thailand, Malaysia and the Philippines.
Mr Connolly says this region offers the potential for impressive returns over the long term.
“The sector benefits from strong global growth with high levels of exports from the region, and the demographics are positive with an emerging middle class with wealth, meaning there should be less long-term reliance on overseas markets in the future. Asia tends to perform well when China, which is the economic powerhouse in the region, does well,” he explains.
Our winner this year is Merian Asia Pacific.
Mr Connolly adds: “This fund has three experienced managers from Old Mutual, who adopt a numbers-based approach to their investment process. They make objective decisions based on current conditions, aiming to take advantage of market inefficiencies. This has achieved strong medium-term results although performance has fallen back over the past year.”
Coming in second place is last year’s winner, Invesco Asian.
Mr McDermott says: “What we like about this fund is the very different approach taken by manager William Lam. He looks for companies where the market is underestimating earnings growth, and stocks are chosen with a three-year investment horizon to give the share price time to appreciate to a level he believes to be fair value. The fund has managed to outperform despite the value style being out of favour.”
EUROPE EX UK
Winner: Man GLG Continental European Growth*
- Manager: Rory Powe
- Ongoing charge: 0.9%
- Value of £1,000 invested five years ago: £2,270 (127%)
Highly commended: Marlborough European Multi Cap
“Confidence in European markets has improved markedly from the doom and gloom that has surrounded the Eurozone for a number of years,” says Mr Connolly. “We have seen significant signs of progress in European economies, with growth coming through and unemployment falling steadily.
“But despite the improving outlook, there are question marks still surrounding Europe. We’re facing the UK’s withdrawal from EU; there may be further political upheaval if nationalist political parties continue to gain traction; and the European Central Bank has fallen a long way short of solving all of the economic issues in the Eurozone.”
For investors unfazed by these possible headwinds, our winner for the third consecutive year is Man GLG Continental European Growth.
Mr McDermott says it is a high-conviction fund with a bias towards growth stocks.
“The manager invests in quality companies with a sustainable competitive advantage, avoiding those that can’t control their own destiny. This leads to an underweight in financials, energy and materials stocks,” he says.
Coming in second place is Marlborough European Multi Cap.
“This is a multi-cap fund but with a big bias towards smaller companies – an approach that has boosted its long-term performance. Managers look for cheap shares with good growth prospects and strong management teams,” says Mr Connolly.
Winner: Baillie Gifford American
- Manager: Tom Slater
- Ongoing charge: 0.52%
- Value of £1,000 invested five years ago: £3,070 (207%)
Highly commended: T Rowe Price US Blue Chip US Equity
“The US market is too big for people to ignore, so the vast majority of investors should have some exposure there,” says Mr Connolly. “It has the largest stock market and economy in the world and is home to many of the most innovative companies such as Apple, Microsoft and Amazon. It is also likely to be home to many of the next generation of market-leading companies.” However, because the market is so well researched it takes a strong stock picker to outperform the index.
Baillie Gifford American is our winner this year.
“This is a good-quality, unconstrained stockpicking fund that has a consistent record of outperformance. The manager believes that getting a small number of stocks right and backing them with conviction can lead to outperformance, which is why the fund typically only has about 40 holdings with the largest 10 holdings accounting for more than 50% of the portfolio. This can be a volatile fund but long-term investors are likely to be rewarded, especially as the fund also has very competitive charges.”
Taking the runner-up spot is T Rowe Price US Blue Chip US Equity.
The fund has been managed by Larry J Puglia for nearly 16 years and has an objective of long-term capital growth. It invests in a diversified portfolio of large and medium-sized US firms with its top holdings including the blue-chip tech giants Amazon, Microsoft, Facebook and Alphabet – the parent company of Google.
“The US market is too big for people to ignore”
To decide the winning funds, we took the top 20 retail funds over three years and aggregated their performance over three, five and, wherever possible, seven years. We consulted with industry experts on the suitability of funds for Moneywise readers and screened out any funds charging more than 1%. Thanks to FE for providing us with the necessary data.