The best funds on the market
Last year (2017) saw a recordbreaking £46bn of cash invested into UK funds, almost 600% more than in 2016 when initial fears about the UK’s decision to leave the EU caused investors to pull money out of funds in droves.
It’s easy to see why funds are popular as you get exposure to lots of different assets through a single product.
Unfortunately, knowing which fund to pick can be tricky unless you are an expert or know where to get help. There are thousands of fund options which can lead to what psychologists call the ‘paradox of choice,’ when too much information paralyses people into making no decision at all.
Some funds have a wide-ranging investment remit such as targeting returns that roughly match global growth or the ambition might be to perform a bit better than the MSCI AC World Index, for example, over a period of time. They might target capital growth, income or a mixture of the two.
Other funds are far more specific. They might target a particular geographic market such as, the UK, US, Europe or emerging markets such as Asia, for example. Or they might focus on particular industries such as technology, infrastructure or renewable energy. You can even get funds which focus on specific asset classes such as bonds or property as well as, or instead of, equities.
DE-CLUTTER YOUR THINKING
Simplifying the selection process can help, as we discussed in detail in a feature on 14 September 2017. In that article we talked through an elementary six-step process.
The sixth step is to consider using a short-list provided by a trusted source of analysis.
Most execution-only investment platforms offer a preferred funds list, and experts at AJ Bell have recently re-jigged their own conviction line-up. This exercise effectively strips down the thousands of funds on the market to just 76, a far more manageable number for investors to assess for themselves.
‘Identifying the best funds from the thousands that exist in the market is one of the biggest challenges investors face and is something our customers consistently ask for help on,’ says Ryan Hughes, head of active portfolios at AJ Bell.
The majority of the conviction list features actively-managed funds, 55 in all, although they are complemented by 21 passive exchangetraded funds, so there’s something for investors of every stripe.
Popular names on this conviction list include
BlackRock Gold and General (B5ZNJ89), Polar
Capital Global Technology (B42W4J8) and TB Evenlode Income (BD0B7D5), the latter having beaten its FTSE All Share benchmark every year since 2011.
HANDS-ON OR HANDS-OFF Active funds are run by a professional fund manager who selects what goes in the portfolio. The aim is to typically beat a benchmark index and outperform the market, meaning investors in the fund could get better returns, although you have to pay a fee for the services of the fund manager.
The alternative is to use passive funds, often called tracker or index funds.
These aim to mirror the performance of a key benchmark or index, such as the FTSE 100 or FTSE All-Share. They do this by investing their cash to match the make-up of the benchmark they are tracking. These types of funds are relatively low-cost, although potential returns are unlikely to exceed the index they are tracking.
As you might image, distilling thousands of fund possibilities into a relative handful is huge and complex task.
‘The funds have been picked using a variety of criteria, including assessing the fund manager’s ability through multiple market cycles, the investment process utilised and cost,’ explains Simon Molica, a fund manager at AJ Bell.
New entrants to the AJ Bell conviction list include
Man GLG UK Income (B0117D3), Troy Trojan
Income (BZ6CQ17) and the JOHCM UK Dynamic (BDZRJ10), which we write about in more detail later in this feature.
Funds that have fallen off the list are NOT sell recommendations, AJ Bell stresses, but the refreshed selection represents ‘our highest conviction picks today,’ says Molica.
It is also important to stress that AJ Bell is not giving financial advice by providing its list of favourite funds. It is simply to provide some guidance to investors who want help with narrowing down the funds universe and anyone interested in these funds should always go off and do further research before making an investment decision. We will profile eight of these funds in this article. The full list can be found at
Man GLG’s portfolio includes a stake in Qinetiq which is involved in air, land and cyber protection