Bestinvest’s most popular funds in September

Jason Hollands, managing director at Bestinvest, looks at the top ten funds that proved most popular with clients using the Bestinvest Online Investment Service in September.

Bestinvest’s most popular funds in September

Three months on from the EU Referendum vote, capital markets have proved resilient and have been supported by continued lose monetary policy. UK consumer confidence levels have risen to pre-Brexit levels and much of the recent economic data has defied the gloomy predictions.

In the investment world, one particular area of stress over the summer had been the commercial property funds sector where a number of open-ended funds suspended trading as redemption requests mounted. Encouragingly we have started to see some of these funds reopen as the market has stabilised and cash buffers have been rebuilt.

With Brexit concerns having abated to a considerable degree, market attention for now has turned to the Presidential Elections in the US and concerns over the health of Europe’s banking sector.

But during this period of recalibration the funds that have proven most popular with our clients have not changed dramatically. The focus has remained primarily on equities and multi-asset funds rather than fixed income, and a continued preference for long-established active equity fund managers rather than rising stars in most markets.

The one exception has been the US where clients firmly favour passive funds. It is easy to see why, as while most UK and European equity funds have beaten their respective benchmarks over the last five years, little more than 6% of funds in the IA North American sector have managed to outperform the S&P 500 Index over the same time period.

Funds

The most popular fund with our clients for the fourth month running was the Fundsmith Equity fund, managed by the forthright City big gun Terry Smith. He hit the headlines recently for ploughing £115m more of his own cash into the fund, bringing his total holding to more than £200m – a big vote of self-confidence. Smith has an ‘invest-and-hold’ strategy focused on quality growth stocks from across developed markets. He sums this up as: “Buy shares in good companies; don’t overpay; do nothing.” It currently has a focus on consumer staples, 35.3%, healthcare, 24.4%, and technology, 23.9%.

In second place was the eponymous CF Woodford Equity Income fund, managed by Neil Woodford. Rarely out of the press for long, Woodford hit the headlines in September for lambasting the short-termism of the City. He believes fund managers should think like owners, believing they have invested in a stock rather than simply borrowing it for a short period. His flagship fund generally focuses on resilient businesses that are less affected by the global economic cyclical and are more in charge of their own destiny. Longstanding top holdings include healthcare multinationals AstraZeneca and GlaxoSmithKline, and he continues to invest very significantly in the tobacco industry with big positions in industry giants Imperial Brands and British American Tobacco.

The Tilney Bestinvest Growth portfolio was the third most popular fund and is designed for investors with a higher tolerance for risk and a long investment time horizon. It invests into a portfolio of funds selected by our research team. Around two-thirds of the portfolio is invested in equity funds, including exposure to smaller companies, emerging markets and Asia. The remainder of the portfolio is diversified across bond funds, commercial property and other areas to reduce stock market risk.

In fifth place the Tilney Bestinvest Aggressive Growth Portfolio takes a more adventurous investment approach than the Growth portfolio, with a larger exposure to shares in small companies and overseas companies. It is also designed for investors with a high tolerance for risk and a long investment time horizon.

Emerging market equities and Asian markets rebounded strongly over the summer after a shaky start to the year so it was unsurprising to see Stewart Asia Pacific Leaders, a longstanding top rated fund, appear in the list. The management of the fund is now firmly in the hands of David Gait with Angus Tulloch having handing over the reins in the summer. The investment approach, however, remains consistent and the team continues to have the highest weighting to India, of 24.7%, with Taiwan (18.5%) the next largest weighting.

Managed by Julian Fosh and Anthony Cross, the Liontrust Special Situations fund has long held a highly coveted five-star rating from our research team and has managed to achieve both significant and consistent outperformance over the long term, but with less volatility than the UK market. The fund follows a well-articulated process, called the Economic Advantage approach, that looks for companies able to sustain a higher than average level of profitability for longer than expected. The companies the fund invests in have distinct characteristics, like ownership of intellectual property, strong distribution channels or significant recurring revenue streams whether they are large, medium sized or smaller companies. Top holdings include takeaway franchise Domino’s Pizza, quality assurance group Interlek and professional services data provider RELX.

The Threadneedle European Select fund makes a return to our top 10 list at a time when manager Dave Dudding is positive on opportunities for his fund, despite volatility being generated by geopolitical uncertainty in Europe and beyond. Dudding has recently been joined by newly appointed co-manager Mark Nichols who joined from BMO Global Asset Management. The fund retains its bias to consumer goods, with healthcare, consumer services and chemicals also areas of focus. Financials are a considerable underweight due to concerns over the European banking sector. The fund aims to seek out companies with strong brands that are less sensitive to price-based competition and as such the fund invests heavily in firms such as Unilever, the multinational consumer goods company, and the world’s largest brewer Anheuser-Busch InBev.

The Threadneedle UK Equity Income fund is another great choice for core UK equity exposure. Manager Richard Colwell is well regarded due to his experience and pragmatic approach, and his fund currently has a defensive skew that focuses on total return. It is currently very underweight financials compared to its FTSE All-Share benchmark, and in the last three months has increased its position in AstraZeneca, while reducing its stake in retailer Marks and Spencer.

The HSBC American Index fund is a tracker fund that follows the S&P 500 index, which is notoriously hard for active managers to beat. Over the last five years managers of US equity funds have struggled to keep up with a bull market in US shares lifted on a tide of cheap money. No wonder, then, that many investors have given up entirely on active funds for their US exposure, choosing low-cost trackers instead. This tracker fund has a very low ongoing charges figure of 0.08%. However, with one of the most acrimonious Presidential elections in recent history underway and the US Federal Reserve Bank contemplating future interest-rate hikes, the US market could face some volatile times ahead.

The tenth slot was taken by the AXA Framlington UK Select Opportunities fund run by veteran stock-picker Nigel Thomas who has been managing funds in the UK All Companies sector for over 28 years. Thomas recently revealed his simple tips for good fund management: “using your eyes and ears” and “a good memory”. He does not invest in contractors, housebuilders, airlines or hotels because of a combination of low margins and low barriers to entry, preferring instead to stick with well-known consumer brands with strong cash flow generation. Reflecting this, his fund’s top holdings include sports gaming group Paddy Power Betfair, ITV and Dixons Carphone.

 

The most popular funds selected by clients using the Bestinvest Online Investment Service in September 2016

  Fund name
1. Fundsmith Equity
2. CF Woodford Equity Income
3. Tilney Bestinvest Growth Portfolio
4. Tilney Bestinvest Aggressive Growth Portfolio
5. Stewart Investors Asia Pacific Leaders
6. Liontrust Special Situations Fund
7. Threadneedle European Select
8. Threadneedle UK Equity Income
9. HSBC American Index
10. AXA Framlington UK Select Opportunities

 

 

Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest. 

 

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