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The best funds on the mar­ket

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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

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