There are so many funds to choose from in the UK, it can be a challenge finding the right ones to fit your portfolio. The Armchair Trader team have taken a look at a wide cross-section of investment sectors and picked out what we feel are the best funds to invest in now.
We have looked only at funds with at least a three year track record of positive performance at the time of writing. From those we have focussed on some of the best performers and taken into account ratings from independent fund data companies such as Morningstar and Trustnet.
As well as Unit Trusts, we’ve also picked out an example of an Exchange Traded Fund (ETF) for each sector. We’re big fans of ETFs here at The Armchair Trader as we love their low fees. But with ETFs, given what they are, the choice arguably comes down less to finding the right fund, but rather finding an index that you like long-term, since the performance of the various ETFs that track that index will often be similar. Differentiation between funds may then come from other criteria such as ongoing charges.
Our ‘best funds to invest in now’ are not recommendations, of course, not least because what might be an appropriate investment for a 25 year old might be unwise for someone approaching retirement. What we would always recommend, however, is seeking professional advice from a financial adviser, knowing your own appetite for risk, and doing your own research! We have linked to a number of different websites where in-depth information on all the funds listed can be found.
The best funds to invest in now
In order to identify the best funds to invest in now, we examined the following investment sectors:
- Asia Pacific
- Bonds & Gilts
- Emerging Markets
- Ethical, Green & Sustainable Funds
- European Equities
- Technology & Biotechnology
- UK Equities
- US Equities
Best Asia Pacific Funds
Background: The Asia Pacific sector (Asia-Pac or APAC) includes countries adjoining the western edge of the Pacific ocean. The region is stocked with many emerging market economies, many of which have experienced rapid growth over the last few decades, but also includes heavyweights such as Japan, India and, by some definitions of Asia-Pac, Russia and Australia. The unit trust sector has seen returns of over around 75% over the last 5 years, at time of writing (official Investment Association sector performance).
Fund Choice: JP Morgan Asia Growth
What we like: JPM have a long history of investment in Asia, and in the crowded Asia-Pac sector you’d be hard-pressed to find a more experienced manager than JP Morgan. This fund alone has been operating for over 40 years. The management team aim to invest in growth companies and are also responsible for JPM’s Asia Growth and Asia Smaller Companies funds. The choice of equities may not appear revolutionary, with large holdings in Alibaba, Samsung and Tencent, for example, but we like the geographic spread which includes significant holdings in India, Taiwan and Indonesia – more interesting than other funds heavily dominated by mainland China. It’s not a huge fund, sized at around GBP 600m at time of writing, but it’s large enough to have its voice heard as a shareholder. Performance over the last 5 years has topped 100%.
ETF Pick: Smartshares NZ Mid Cap
What we like: New Zealand has long been seen as a safe haven in times of discord. If the locals are to be believed the countryside is littered with millionaires’ post-apocalyptic bolt-holes. This fund follows the S&P/NZX Mid Cap Index, which itself represents the performance of NZ’s “core mid-cap equity market” – all but the top 10 largest companies in the NZX 50.
Best Bond & Gilt Funds
Background: Gilts and bond funds perhaps used to be the shabby curate in the room, compared with other actively managed funds, but this perception has changed over time not least because of the implosion of certain investment sectors in the Noughties. As with our fund choice, bond funds now have a wide range of options for investment and can cater to investors with higher appetites for risk than the traditional Gilt investor of the past.
Fund Choice: GAM Star Credit Opportunities
What we like: The fund has a broad scope to invest in fixed interest securities ranging from government bonds (gilts in the UK) to less widely-understood and riskier instruments such as contingent capital notes (CoCos), commonly issued by banks looking to safeguard their Tier 1 capital ratio. Holdings are dominated by UK-based corporate bonds and equities, with no one holding constituting much over 5% of the fund.
ETF Pick: iShares USD Corporate Bond UCITS
What we like: A low-charge, USD 6.5bn ETF plugged into the performance of global corporate bonds and tracking the Markit iBoxx USD Liquid Investment Grade Index, which is “a balanced
representation of the USD investment grade corporate market.” Managed by iShares, who were one of, if not the, first ETF providers in the UK market.
Best Emerging Market Funds
Background: Including much of Eastern Europe, South East Asia and the BRIC countries (Brazil, Russia, India, China) the term ’emerging’ is generally understood to be in relation to Western European, US and Japanese economies, but consistent definitions are elusive. Regardless, for investors the key word here is growth.
Fund Choice: BlackRock Emerging Markets
What we like: With 50% of investors’ money held in BRIC, and with its top four of its 64 holdings in Samsung (South Korea), Alibaba (China), Petrobras (Brazil) and Sberbank (Russia) we wouldn’t call this fund overly adventurous. However, manager Gordon Fraser’s track record with BlackRock is impressive and he has teamed up with former JP Morgan man and Asia-Pac expert Andrew Swan to run this fund. With a relatively small fund size of just over GBP 300m that’s an average of just GBP 5m per holding, which leads us to think that management can remain nimble with their stockpicking and exit strategies. BlackRock themselves classify this as a high-risk fund, while it has earned accolades such as four stars from Morningstar and five crowns from Trustnet, who only consider it mildly more risky than investing in the FTSE-100.
ETF Pick: Invesco BRIC
What we like: Not only in this sector have the BRIC countries performed well for investors over the last three to five years. There are plenty of BRIC-linked ETFs on the market – here we have selected ETF investment powerhouse Invesco Powershares.
Best Ethical, Green and Sustainable Funds
Background: There was once an official Ethical sub-sector, since absorbed into other sectors such as UK All Companies. That there is no longer such a sector reflects a more modern attitude to investment, whereby a growing audience demand that funds invests in sustainable businesses irregardless of geographical or sector focus, and do not see “Ethical” as a specialist niche. That said, it is perhaps old-fashioned of us to lump together Ethical, Green and Sustainable into one category. We have tried to select a fund with sustainability at the heart of its investment objectives. Investors should note that fund ratings company Morningstar provide a Sustainability rating for mutual funds.
Fund Choice: Unicorn UK Ethical Income
What we like: Highly rated (by Trustnet.com) manager Fraser Mackersie and Simon Moon head up management of this Morningstar 4-Star fund, which aims for 110% yield versus the FTSE All-Share Index. It uses as its moral compass a set of regularly reviewed ethical and socially-responsible criteria set by Unicorn as a final layer of screening on top of the MSCI’s Negative Screening and ESG Screening (Environmental, Social and Governance) processes. Rather than duplicate effort, these screens are applied to investments held in Unicorn’s popular UK Income Fund. As one would hope, Unicorn are transparent about their ethical filtering.
ETF Pick: Invesco Cleantech
What we like: Based on the Cleantech Index of around fifty companies who derive at least half their revenue or profits from alternative energy, air and water purification, eco-friendly agriculture and so on.
Get the fund factsheet: Direct from the Manager
ETF Honourable Mention: VanEck Vectors Environmental Services
What we like: The underlying index for this ETF is the NYSE Arca Environmental Services Index, which tracks performance of companies involved in environmentally beneficial endeavours such as soil remediation and recycling. Where there’s muck there’s brass, as waste collection and waste disposal companies are also included. Performance has topped 60% over the last three years.
ETF Honourable Mention: iShares MSCI World Islamic UCITS
What we like: The underlying MSCI World Islamic Index takes funds from the MSCI World Index and filters them down to those complying with Shariah investment principles. This ETF received a four out of five stars from fund data website Trustnet.com, and has shown 60% performance over five years.
Best European Equity Funds
Background: With 200 funds in this sector showing a positive return for investors over the last three years there is no shortage of good performers here.
Fund Choice: Schroder International Selection Fund Emerging Europe
What we like: While superficially a European fund the managers in fact have the latitude to invest in the Middle East, North Africa and states of the former Soviet Union, and can use derivatives and cash. Coming in just under GBP 1bn and investing in around 40 holdings at any one time, the fund’s stated aim to factor sustainability into its investment decisions is a welcome plus.
ETF Pick: iShares MSCI Russia ETF
What we like: Of the 300 ETFs in this sector it is notabe that most of the best performers of late have significant investments in Russia. So we have selected the iShares MSCI Russia ETF as our example, while being aware that for some investors Russia remains a more adventurous play given the fluid nature of its relationshp with the rest of the world, and in particular the West.
Best Global Funds
Fund Choice: Fundsmith Equity
What we like: With impressive performance over the last five years of circa 150% no wonder Fundsmith CEO and CIO Terry Smith’s flagshp Equity fund makes its way into many buy-lists and has earned numerous accolades. It is due to the manager’s consistent track record that this GBP 17bn fund makes an appearance here.
Honourable Mention: Lindsell Train Global Equity
What we like: Co-founder Michael Lindsell had stints at Lazards and Mercury before heading up his eponymous company’s GBP 8bn vehicle, while Nick Train has a background at M&G. Both have a strong reputation in the industry, which by itself is an indicator – rather than a guarantee – of success. A third of the portfolio is UK-based, and another third US. Top holdings are FMCG (fast-moving consumer goods) heavyweights Unilever, Diageo and Heineken.
ETF Pick: Lyxor UCITS ETF DJ Global Titans 50
What we like: The Dow Jones Global Titans 50 Index consists of Earth’s largest blue chip companies by market capitalisation. Weighted to the US, you would expect high liquidity.
Best Technology & Biotechnology Funds
Some of us old enough to remember the turn of the millennium get a cold shiver when thinking about investing in tech funds, but since that bubble popped tech companies have grown up. Here at The Armchair Trader we like Fitness-tech, Age-tech and innovative integrations of technology into modern life. For example, as the UK population ages the ubiquitous fitness trackers will be worn by an older population. We expect wearables will soon encompass a mash-up of existing tech, combining fitness tracking (Garmin, FitBit, Apple, etc.) with fall alerts (e.g. Vodafone’s V-SOS band) and a tie-in with insurance providers (e.g. Vitality Health). The latter may well drive this trend, being keen to correlate premiums to healthier lifestyles in the same way they may already encourage you to install a box in your car to monitor your safe driving. In the process companies will be collecting – and possible selling – valuable actuarial data on our behaviour.
Fund Choice: AXA Framlington Global Technology
What we like: Put simply, stellar performance over 1, 3 and 5 years. The fund has returned an average of 17% each year since launch and can use derivatives and hedging strategies.
ETF Pick: iShares S&P/TSX Capped Information Technology Index
What we like: One of the best performers in the sector.
Honourable Mention: iShares PHLX SOX Semiconductor Sector Index
What we like: With the most famous example probably being Taiwanese Semiconductor (TSMC), we see the demand for semiconductors continuing to grow as more small electronic devices make their way into our lives.
Best UK Equity Funds
Fund Choice: LF Lindsell Train UK Equity
What we like: Another appearance for Lindsell Train in this list. The GBP 7bn fund performed uninspiringly in 2018, but that appears to be something of a blip in the record of excellent performance over the last decade.
Honourable Mention: CFP SDL UK Buffettology General
What we like: Named after the Berkshire Hathaway sage himself, manager and founder Keith Ashworth-Lord runs a diligent operation according to the principles of Warren Buffett’s Business Perspective Investing.
ETF Pick: iShares FTSE 250 UCITS
What we like: One of the best performers amongst UK-focussed ETFs.
Best US Equity Funds
Fund Choice: T. Rowe Price US Blue Chip Equity
What we like: With capacity for derivatives and hedging this fund has returned over 18% on average over the last five years. Around 10% of the portfolio is held outside the US. Rated Gold by Morningstar.
ETF Pick: ProShares UltraPro Dow30
What we like: A leveraged ETF that seeks to return triple the daily returns of the Dow Jones Industrial Average. This leverage comes with significant extra risk, as noted prominently in the fund propectus.
So that’s our list of what we feel are the best funds to invest in now. It’s a broad sweep and we’d love to hear your thoughts either through the discussion section below, or via our social media channels. And don’t forget to share our list of the best funds to invest in now with your friends.