Jason Hollands, Managing Director at Bestinvest comments on the funds that proved most popular with clients using Bestinvest’s Online Investment Service in May.
Recently released industry-wide figures from the Investment Association show that overall investors have displayed a strong preference for more cautious investment sectors of late, such as targeted absolute return funds and bond funds, and less enthusiasm for equity funds including those focused on the UK stock market. Some of this may be down to the noise around the increasingly heated EU referendum campaign.
Amongst our clients however, the ten most popular funds* during May were all equity funds or multi-asset funds with high equity weightings but with a clear preference shown for well-established, seasoned investors rather than newer, up-and-coming fund managers.
The top choices were:
1. Woodford Equity Income
Woodford Equity Income has continued to prove a hit with investors, topping the monthly popularity tables once again. With the EU referendum debate still dominating the national conversation, star fund manager Neil Woodford has been trying to ease the minds of his investors by arguing that the fundamentals of the UK economy would be relatively unmoved “whatever the outcome” and saying “'if the currency is weaker for a period, that will be potentially stimulative for the economy, so it might actually work out to be good news for exporters.” Fans may be interested to know that Mr. Woodford’s firm is also considering whether or not to launch a “High Income” fund with a target yield of 4.5%, though no further details are available at this stage. Investors who already have exposure to Woodford Equity Income and wish to diversify further might also consider other high quality funds such as Ardevora UK Income, Evenlode Income and Standard Life UK Equity Income Unconstrained.
2. Fundsmith Equity
City maverick Terry Smith, manager of the Fundsmith Equity fund, is another manager who has weighed into the Brexit debate, siding firmly with the Leave campaign. In respect of the fund he claims a weaker sterling “would be rather good for us. Most of our companies are non-sterling earners”.
The fund invests in quality growth companies on a global basis, and currently has 61.1% exposure to US companies and 23% to the UK. Top contributions in May came from Microsoft and Unilever, while Paypal and Pepsico made up some of the top detractors.
3. Tilney Bestinvest Growth Portfolio
The Tilney Bestinvest Growth portfolio is designed for investors with a higher tolerance for risk and a long investment time horizon. Around two-thirds of the portfolio is invested in shares, including exposure to smaller companies, emerging markets and Asia. The remainder of the fund is diversified across bonds, commercial property and other areas to reduce stock market risk.
4. Threadneedle UK Equity Income
Richard Colwell, manager of the Threadneedle UK Equity Income fund, is set to become Head of UK Equities at Columbia Threadneedle at the end of this month, when the current incumbent and former co-manager of the fund Leigh Harrison retires. The fund is currently underweight financials and oil and gas, while overweight consumer services and industrial companies. Key holdings include tobacco giant Imperial Brands, supermarket WM Morrison, healthcare groups AstraZeneca and GlaxoSmithKline and insurers RSA and Legal & General.
5. Stewart Investors Asia Pacific Leaders
Fund manager Angus Tulloch is an incredibly experienced hand, who has guided his Stewart Investors Asia Pacific Leaders fund through volatile Asian markets. He is currently sharing management duties with David Gait, ahead of a full handover which is expected to occur on 1 July, but investors should not be worried about the switch. Gait is seasoned manager himself, having managed the Pacific Assets investment trust and the Stewart Worldwide Sustainability fund. While relinquishing management to Gait, Tulloch will remain part of the investment team.
6. Threadneedle European Select
Threadneedle European Select trod water in May, broadly matching the performance of its Investment Association Europe excluding UK sector benchmark. Manager Dave Dudding was encouraged by the eventual political breakthrough in Ireland, which saw Enda Kenny re-elected as Taoiseach after 63 days of fraught negotiations between leading parties Fine Gael and Fianna Fáil. However politics remains the main cause for concern in Europe, with new elections in government-less Spain scheduled for 26 June, just days after the potentially seismic referendum vote in Britain.
7. Tilney Bestinvest Aggressive Growth Portfolio
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.
8. Liontrust Special Situations
Despite the fund’s high exposure to mid-caps and smaller companies, parts of the market that have been more impacted by anxieties around Brexit than the internationally biased FTSE 100, the Liontrust Special Situations fund has continued to consistently outperform. The fund’s distinctive investment approach focuses on quality growth companies with attributes that enable them to stay ahead of the competition and deliver resilient growth through the economic cycle. Holdings include Diageo, the manufacturer behind globally popular alcoholic drinks such as Smirnoff vodka and Guinness stout, and EMIS Group, a smaller company holding, which provides software and IT to NHS health authorities and is therefore less sensitive to the ups and downs of the economy.
9. Legg Mason Japan Equity
Hideo Shiozumi has the longest track record of any Japanese equity fund manager running a fund available to UK investors, with over 40 years investment experience including a spell working for hedge fund legend George Soros. The Legg Mason Japan Equity fund sits at the racy end of the spectrum, pursuing a highly concentrated approach which is currently invested in just 42 companies with a clear bias towards medium-sized and smaller companies. The fund has cemented itself as the top-performing Japanese fund over multiple timeframes. The Legg Mason Japan Equity fund focuses specifically on growth companies of the so-called ‘New Japan’, which includes areas such as healthcare and information technology. Bestinvest clients benefit from a 0.05% unit rebate on the fund, which reduces the ongoing costs from 1.02% on the X share class to 0.97%.
10. HSBC American Index
May was a volatile, yet ultimately positive month for the S&P 500, with gains led by stocks that have generally underperformed so far in 2016, such as technology companies. The American index is notoriously hard for active managers to beat, so instead many investors prefer low cost index trackers such as the HSBC American Index, which has a very low ongoing charges figure of 0.08%. With renewed talk about further interest rate rises this year in the US, disappointing jobs data and a Presidential election in November which pits Donald Trump against Hillary Clinton, the US markets could face some volatility over the coming months. Investors wanting a more active approach in this environment might consider Loomis Sayles US Equity Leaders.
At a glance: The most popular funds selected by clients using Tilney Bestinvest’s Online Investment Service in May 2016:
Find out more about how we rate funds here: /investment-research/our-research-approach
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* The most popular funds selected by clients using Tilney Bestinvest’s Online Investment Service in May 2016