With so many funds and investment trusts on offer across a huge variety of sectors and regions, it can be difficult for the everyday investor to work out the best place to put their money.
Twice a year investment platform Bestinvest publishes its The Best Funds List which includes traditional open-ended investment funds – known as OEICs – investment trusts and ETFs.
The 120 strong list includes funds managed by well known fund management firms as well as smaller boutique outfits. The list includes 25 listed investment trusts and 11 exchange-traded funds.
Bestinvest has published its annual best buy list, which picks out the funds it thinks will outperform its peers and the benchmark
There are 18 new funds since Bestinvest published last autumn with an increased focus on income trusts as investors pivot away from growth stocks.
Bestinvest’s top funds include Blackrock UK Income, Premier Miton UK Growth and Picton Property Income.
Some funds which appeared on last year’s list have not made the cut, including Jupiter Income Trust and Lindsell Train Global Equity.
Bestinvest also recently named and shamed the underperforming investment funds. The Spot the Dog report, which was published last week, highlighted 86 laggard funds including JPM US Equity Income, Halifax UK Growth and BNY Mellon Global Income.
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How does Bestinvest pick the best funds?
The list highlights the funds Bestinvest can outperform their peers and benchmark indices.
‘We’re not saying they’re definitely ‘the best’ – and we’re not sayig they’re right for you – but what we are saying is that we have real conviction in them,’ says the platform.
The criteria is rigorous: its ‘10 commandments’ include managers who are not constrained by hugging benchmarks, have a clearly defined approach, personally invest in their own funds and are willing to limit the size of their funds if this starts to hamper the way they are managed.
UK
Appetite for UK growth companies picked up in the first half of 2021 before inflation and omicron fears dampened recovery expectations.
‘[The UK’s] heavy exposure to more economically sensitive sectors such as banks, or oil and gas, leave it vulnerable to the ebb and flow of global economic fortunes. This worked well at the start of 2021 but was less positive in the second half when economic momentum started to stall,’ says Bestinvest.
‘The smaller companies sector is – slightly unfairly – seen as being exposed to the domestic economy. This means that the sector tends to sell off when there are wobbles over the strength of domestic growth. The UK smaller companies sector did very well in the early part of the year but saw a significant sell-off in the final quarter, when concerns emerged over the UK economy.’
However JP Morgan recently upgraded UK equities, citing a ‘record discount’ compared to other regions and Bestinvest adds: ‘As it stands, valuations remain low relative to their own history and to stock markets elsewhere. Nevertheless, as always picking a manager with the skill and experience to capitalise is crucial.’
Chris St John is one such manager highlighted by Bestinvest. He runs AXA Framlington UK Mid Cap which primarily invests in medium-sized UK companies that are expected to deliver above-average returns.
Its portfolio typically holds between 60 and 80 stocks which include Pets at Home, Darktrace and publisher Future.
‘The fund always has a minimum exposure of 70 per cent to the FTSE 250 while also holding small-cap stocks knocking on the door of the index and former mid-cap stocks that have progressed to the FTSE 100.
‘The companies sought out by St John should be benefiting from economic and thematic tailwinds, have expected profitability, growth prospects, pricing power and quality management.’
Premier Miton Growth has also been singled out as a top UK Growth fund by Bestinvest.
Run by Jon Hudson and Benji Dawes the fund invests in small, medium and large-sized UK companies. Its portfolio includes Warhammer maker Games Workshop, Legal & General and Hikma Pharmaceuticals.
For income-oriented investors Bestinvest has highlighted TM RWC UK Equity Income, run by Ian Lance and Nick Purves.
The fund’s holdings include household names like Royal Mail, BP and ITV and it has historically performed strongly compared to other UK large-cap value-oriented income funds.
Bestinvest also highlights TB Evenlode Income, run by Hugh Yarrow and Ben Peters, which looks to deliver a growing dividend and capital returns over five years.
North America
The S&P 500 ended 2021 on a record closing high after a strong performance among tech behemoths Microsoft, Amazon, Alphabet and Apple.
‘While there have been fears over their high valuations, they have continued to report earnings growth ahead of market expectations, which has kept their share prices high,’ says Bestinvest.
However, as the Federal Reserve starts to taper its quantitative easing and inflation is likely to push interest rates higher, the strength of the US market may not last.
‘However, the US market has plenty to tempt investors beyond its technology sector… The US economy is still seeing strong growth and President Biden’s multi trillion dollar infrastructure spending package has yet to work its way through the system.’
Bestinvest highlights Dodge & Cox Worldwide US Stock despite the fact it typically invests in large-cap US companies which are temporarily undervalued at the moment.
The team, led by Philippe Barret, Jr, takes an active bottom-up approach to their holdings which include Wells Fargo, Alphabet and Comcast.
‘The team holds on to these stocks for between three and five years to give their investment case time to come through. The portfolio is defensive given its focus on large-caps and this means that it will miss out on small-cap rallies.
‘It also does not invest in new tech, biotech or utilities which, combined with a slow and steady management style, means it can lag when markets are driven by tech stocks. But overall, the experience of the team and their strong investment philosophy makes this fund stand out.’
Bestinvest also picks Findlay Park American Fund as one of its top funds. The team, led by Anthony Kingsley, invests in large and mid-cap US companies and its portfolio includes Microsoft and Amazon.
‘Their aim is to provide the best risk-adjusted returns over time, so the focus is not only on potential upside but also potential downside. As such Kingsley has a very thorough bottomup investment approach assessing each target stock with a checklist of 29 questions, looking at areas such as corporate culture and the sustainability of returns.’
You can read Bestinvest’s full Best Funds list here
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