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Bestinvest names top funds it thinks will outperform the market

The idea of sifting through the thousands of funds on offer at any one time is daunting for the average investor. And with new funds being launched every month, it is easy to opt for big names and rely on past performance alone.

Once a year investment platform Bestinvest publishes its The Best Funds List which includes traditional open-ended funds – known as OIECs – investment trusts and ETFs.

The 119-strong list includes funds managed by large, well-known fund management groups, but also selections from small, boutique management groups which are not household names.

Bestinvest has published its annual best buy list, which picks out the funds it thinks will outperform its peers and the benchmark

This year there are 11 new funds with an increased focus on passive options – trackers which simply clone an index, with no manager actively making decisions – and sustainable investments. 

Top funds include Brown Advisory Global Leaders, the investment trust Renewables Infrastructure Group and five ETFs. 

>>>This is Money’s Fund Centre: Check out performance, charts and more here 

Some funds which appeared on last year’s list have not made it this time round. These include Civitas Social Housing, HSBC’s FTSE 250 Index and the Liontrust Special Situations fund.

How does a fund get picked?

The Bestinvest list highlights the funds the firm thinks can outperform their peers and benchmark indices.

What are best buy lists?  

Best buy lists took a reputational hit in the aftermath of the Woodford scandal in 2019. The flagship Woodford fund was listed on various buy lists at times over the years, and remained on Hargreaves Lansdown’s ‘Wealth’ list until trading was suspended. 

Best buy lists are not regulated as financial advice so investors should be aware that they are just recommendations.

It can be useful to look at as many different lists as possible for fund ideas and those that crop up frequently can be viewed as funds that have impressed analysts. 

For example Liontrust UK Growth features on the best buy lists of both Bestinvest and Hargreaves Lansdown while its Special Situations fund features on AJ Bell and Interactive Investor’s lists. 

Bestinvest says it has ‘scoured each sector to pick out the funds that we think are capable of doing better than their peers and the benchmark’.

It goes on: ‘Of course we can’t guarantee this. We’re not saying they’re definitely ‘the best’ – and we’re not saying they’re right for you – but what we are saying is that we have real conviction in them.’ 

‘We’re not saying they’re definitely “the best” – and we’re not saying they’re right for you – but what we are saying is that we have real conviction in them,’ says the investment platform.

The criteria when selecting actively managed funds – the firm’s ‘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.

The problem with relying on past performance alone ‘is that a fund’s past performance may have been achieved under a different manager from the one at the helm today, or succeeded under a very different set of circumstances, which may be less relevant in the years ahead,’ says Bestinvest’s managing director Jason Hollands.

 ‘Choosing a fund is not just a case of doing some homework before buying them, once invested it is vital to constantly monitor your portfolio. 

‘A change in circumstances, such as the departure of a fund manager or a significant increase in the size of a fund, many require you to reassess whether it is right to stay invested or move to another fund instead.’  

UK funds

Investors’ appetite for UK growth companies picked up in the first few months of 2021 before inflation fears dampened expectations for a recovery.

Those investing in growth companies were boosted by strong performances among health and consumer businesses, as well a rise in the dollar. Despite this revival, UK valuations still look low compared with other markets.

‘The UK still has plenty of challenges, from persistently high Covid case rates to teething troubles over Brexit. There will be opportunities, but picking the right manager and fund is crucial,’ says Bestinvest. 

FUND CHANGES  

Newcomers 

  • Artemis Corporate Bond Fund 
  •  Artemis UK Select Fund
  • Brown Advisory Global Leaders 
  • iShares Core MSCI Japan IMI ETF
  • iShares FTSE 250 ETF 
  • iShares UK Property ETF
  • Jupiter UK Specialist Equity Fund 
  • Renewables Infrastructure Group 
  • Royal London Sustainable Leaders Trust
  • SPDR S&P 500 ETF
  • Vanguard FTSE All-World UCITS ETF

The drop-outs  

  • Allianz Strategic Bond
  • Artemis US Absolute Return 
  • AXA Global High Income 
  • AXA US Short Duration High Yield
  •  Civitas Social Housing Plc 
  • Greencoat UK Wind 
  • HSBC FTSE 250 Index
  • Liontrust Special Situations 
  • SPDR S&P US Dividend Aristocrats ETF 
  • Trojan Income Fund

Ben Whitmore is one such manager. The veteran fund manager runs Jupiter UK Special Solutions, which has a large-cap bias and a value-oriented approach. It is typically less volatile than the broader market and other value managers.

‘Solid stockpicking, controlling for factor exposures within the portfolio, and opportunistic use of cash have all added considerable value over time. Investors seeking exposure to this part of the market will benefit from Whitmore’s experience of consistently implementing his investment process in a risk-efficient manner,’ says Bestinvest.

Liontrust UK Growth has also been singled out as a top UK growth fund by Bestinvest. Run by Anthony Cross and Julian Fosh, it holds around 90 per cent of its capital in FTSE 100 and FTSE 250 stocks. Its top holdings include Astrazeneca, Royal Dutch Shell and BP.

For income-oriented investors, Bestinvest has picked Threadneedle UK Equity Income as one of its top funds.

The UK Equity Income sector has faced significant turbulence as companies slashed dividends in the face of the pandemic and investors gravitated towards high-growth sectors like technology.

Experienced manager Richard Colwell has been more cautious recently with the Threadneedle portfolio, building an ‘engine room’ of solid businesses, supplemented with recovery names like Morrisons and BT.

Sustainable funds

Among Bestinvest’s top funds list, 17 pursue ‘responsible investment strategies’ that factor in environmental, social and ethical (ESG) considerations.

Interest in ethical funds is growing among investors, not least because of the various net zero commitments made by the UK, US and China.

Bestinvest’s top funds are the well-known, established names BMO Responsible Global Equity, Brown Advisory US Sustainable Growth and Liontrust UK Ethical.

What are investment funds, trusts and ETFs?

Open ended funds, sometimes called OIECs, pool investors’ money to put in shares, bonds and other assets. Read more here.

Trusts are listed companies with shares that investors buy and sell on the stock market. 

They invest in the shares of other companies, or assets like property.  Read more here.

Exchange-traded funds are also pooled investments that are traded on stock markets. Read more here. 

Brown Advisory’s fund, run by Karina Funk and David Powell, has one of the longest track records among its peers.

Liontrust UK Ethical has a similarly experienced team, led by Peter Michaelis who was part of the Ethical/Sustainable Team at Aviva and then Alliance Trust before it transferred to Liontrust in 2017.

It has long been hailed as one of the top UK ethical funds with a focus on companies that aim to improve people’s quality of life, improve efficiency in the use of scarce resources, and improve safety.

Its top holdings include Legal & General, Paragon Banking, and packaging firm Smurfit Kappa.

Like Brown Advisory US Sustainable Growth, it also includes negative screening with current areas of exclusion including alcohol, animal testing, fossil fuels, gambling, nuclear, pornography, tobacco and weapons.

 For Bestinvest’s full Best Funds list click here 

BESTINVEST’S BEST BUYS  
Sector  Funds  Yield (%)  Ongoing charges (%)
UK Equities – Growth Jupiter UK Special Situations 1.86 0.76
  Liontrust UK Growth   1.54 0.87
UK Equities – Income  Threadneedle UK Equity Income  2.85  0.82
  TB Evenlode Income  2.33 0.77
Targeted Absolute Return and Multi-asset  Ninety One Diversified Income  3.09  0.69 
  JPM Global Macro Opportunities  0.00 0.66 
  Trojan Fund  0.23 1.01
Fixed Income  TwentyFour Absolute Return Credit  2.30  0.35 
  Janus Henderson Strategic Bond 2.40  0.69 
Europe   TM CRUX European Special Situations   0.90  0.91 
  BlackRock Continental European Income   2.87  0.93 
  BlackRock European Dynamic 0.00  0.92 
Japan  LF Morant Wright Nippon Yield   2.85  1.18% 
  Baillie Gifford Japanese  0.95  0.61 
Global Emerging Markets and Asia Pacific   Schroder ISF Asian Total return   1.38  1.30 
  Stewart Investors Asia Pacific Sustainability   0.57  0.84 
  Aubrey Global Emerging Markets Opportunities   0.00  1.09 
  FSSA  Asia Focus  0.94  0.90 
North America   Findlay Park American   0.00  0.91 
  Dodge & Cox Worldwide US Stock   0.00  0.63 
  Loomis Sayles US Equity Leaders   0.06  0.60 
Global   Loomis Sayles Global Growth Equity   0.00  0.40 
  Fundsmith Equity   0.28  0.96 
  Fidelity Global Dividend   2.60  0.93 
Ethical and Sustainable   Brown Advisory US Sustainable Growth   0.00  0.90 
  BMO Responsible Global Equity   0.40  0.79 
  Liontrust UK Ethical   0.76  0.82 
Real Assets   Lazard Global Listed Infrastructure Equity   0.00  1.00 
  International Public Partnerships   4.10  1.12 
Source: Tilney, Morningstar (as at 31 July 2021)     

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