The Daily Telegraph - Saturday - Money
The most consistent funds for your Isa
Investors assessing a fund are often preoccupied with its total return, but that figure alone explains very little. Two funds that have delivered the same return could have taken radically different paths to get there. A fund that delivered its return via a few highly speculative investments that happened to pay off has not performed the same job as a fund that delivered its return through steady, measured gains from a wide range of holdings.
Similarly, a fund that experiences a volatile ride could be problematic, depending on an investor’s tolerance to ride out the ups and downs. There is little point in an investor buying a fund that will ultimately return 100pc over 10 years if they panic-sell in the second year after a 20pc fall.
Take two UK funds: Liontrust Special Situations and Standard Life Investments UK Equity Unconstrained. Both have delivered huge returns over the past decade, at 315pc and 332pc respectively after fees. But although their returns are similar, there has been a stark contrast in how they have performed.
In the 10 years to June 2018 the Standard Life fund experienced a peak-to-trough fall of more than 10pc in seven of the 40 threemonth periods, according to data from analysis tool FE Analytics. By contrast, the Liontrust fund had only one three-month period in which such a fall took place.
Many professional fund pickers use a metric known as the “information ratio” to examine the performance of a fund. This measures a fund’s returns above its benchmark index against its volatility, and rates how consistently a fund has outperformed over time.
Ryan Hughes, head of fund selection at investment firm AJ Bell, said: “Put simply, it shows whether the fund manager’s active bets have paid off over the long term.
“Fund managers can get lucky with stock picks in the short term, but it’s far more difficult to stay lucky. Those who have a good information ratio over the long term show skill in stock selection. It’s a good way to separate two funds that have achieved similar returns in very different ways.” He said a ratio greater than 0.5 was considered “good” and more than 1 “excellent”.
Below we list the eight funds that AJ Bell has identified as having delivered the most consistent “market-beating” performance over the past 10 years, based on their information ratio. The OCF figure provided is each fund’s annual charge. Investors can find basic information on fund volatility themselves, via websites such as Trustnet and Morningstar, which provide volatility scoring. 10-year annualised return 14.9pc, information ratio 1.54, OCF 0.98pc This £410m fund has been managed by David Gait since 2005. It invests in firms that are likely to benefit from sustainable development in the countries where they operate. Around a third is invested in Indian stocks, followed by Taiwan, the Philippines and Hong Kong.
10-year annualised return 16.7pc, information ratio 1.26, OCF 0.7pc Manager Nick Train is famous for buying high-quality businesses he expects to be around in 50 years or more, and rarely, if ever, selling them. Drinks maker Diageo, consumer goods giant Unilever, analytics business Relx and the London Stock Exchange Group account for 35pc of the £5.4bn fund between them. His top 10 stocks account for nearly 80pc of the fund.
10-year annualised return 19.6pc, information ratio 1.2, OCF 0.95pc This fund’s biggest investments are in industrial, consumer and financial businesses. Manager Alex Wright, best known for running two other large funds at Fidelity, is considered one of Britain’s top investors. He adopts a “contrarian” style, buying businesses in which other investors have lost faith.
James Connington names eight funds that have made big gains with a minimum of ups and downs
10-year annualised return 14pc, information ratio 1.15, OCF 0.9pc This £1.6bn fund has returned 139pc over the past five years and is heavily invested in Germany, Ireland, Italy and Denmark, which each account for more than 10pc of the fund. Top holdings include Ryanair and luxury brands Moncler and Ferrari.
10-year annualised return 15.4pc, information ratio 1.11, OCF 0.86pc Managers Anthony Cross and Julian Fosh have been running this £3.6bn fund as a pair since 2008, and target businesses with pricing power. It is around two thirds invested in large British businesses, with a third in midsized companies. Top holdings include pharmaceutical giant GlaxoSmithKline and oil firm BP.
10-year annualised return 11.2pc, information ratio 1.1, OCF 0.67pc This £2.1bn fund has a lower charge than many rivals and has been managed by Martin Cholwill since 2005. It offers an income yield of close to 4pc; a £10,000 investment 10 years ago would have delivered income of £5,631 plus capital growth of 91pc. Oil, pharmaceutical and financial firms account for many of the top holdings.
10-year annualised return 12.9pc, information ratio 1.09, OCF 0.92pc This £3.1bn fund, run by Alister Hibbert since 2008, has around 21pc invested in French stocks, 14pc in Switzerland and 13pc in Germany. Top holdings include plane maker Airbus and Danish pharmaceutical company Novo Nordisk.
10-year annualised return 13.1pc, information ratio 1.02, OCF 0.63pc Over five years this £2.6bn fund has delivered a 90pc return, compared with 59pc for its average peer. Machinery stocks make up 16pc of the fund, including heavy equipment manufacturer Kubota. It has been run by Matthew Brett since 2008.
Taxpayers could soon be able to apply for tax credits using an Amazon Echo device, commonly known as an Alexa, after HM Revenue & Customs unveiled its first tie-up with the tech giant.
The deadline to apply for or renew certain tax credits, including child tax credit, comes at the end of July and taxpayers will be able to ask their smart home device ( pictured) for guidance when completing their application, HMRC has announced.
A spokesman for the tax office said it was exploring the possibility of developing software that would allow applications to be made solely through the device. More than 65,000 people have used its app to renew tax credits in 2018, compared with 38,411 in 2017. Customers can get advice from Alexa but cannot currently renew their credits.
George Bull of accountants RSM said he welcomed anything that made applying for tax credits easier but was concerned how the device would cope with potentially complicated renewals.
He added: “I think the test will come with how HMRC responds when it becomes clear that someone using the app or an Alexa device has made a genuine error. Will they say it’s careless and unacceptable, or will they forgive it as a genuine glitch?”
Last month privacy campaigners accused the tax office of covertly making “biometric ID cards” after it emerged that its voice ID system had recorded 5.1 million audio signatures, although callers could choose not to be included. Those applying to renew tax credits, including child tax credit and working tax credit, can do so online at gov.uk before July 31.
‘Funds can get lucky in the short term, but luck is difficult to sustain’