Jason Hollands, Managing Director at Tilney Bestinvest comments on the funds that proved most popular with clients using Tilney Bestinvest’s Online Investment Service in September.
1. CF Woodford Equity Income
“Since its launch last summer, devoted fans of the UK’s best known fund manager - Neil Woodford - have propelled the Woodford Equity Income fund to almost £7 billion in size, making it the biggest beast in the popular UK Equity Income sector. Their faith has so far been rewarded with very strong performance versus most of the competition.
“Neil Woodford remains cautious in his view of the global economy and the impact that a slowdown in China is having on certain parts of the stock market such as commodity companies. He prefers companies that are more in control of their destiny and are less prone to changes in the economic cycle, which includes tobacco giants (Imperial Tobacco, British American Tobacco) and healthcare firms (Astrazeneca, GlaxoSmithKline).”
2. Standard Life Global Absolute Returns Strategies (GARS)
“Recent months have seen markets enter choppier waters and this has led to increased demand for more defensive investments, including targeted absolute return funds which aim to deliver positive returns across different market conditions – though this is not guaranteed. The massive Standard Life “GARS” fund is the industry block buster in this space and has delivered consistent returns with low volatility. GARS provides investors with a “one stop shop” to access a plethora of over 30 underlying investment strategies across equities, bonds, currencies and interest rates, each of which is designed to make a positive contribution to performance. Risk is tightly controlled but, like any investment, Targeted Absolute Return funds do not guarantee a positive return and you could get back less than you originally put in.”
3. First State Asia Pacific Leaders
“Asian markets have been going through a really challenging period this year, with China at the epicentre of concerns and accompanied by fears over how the region will cope with rising borrowing costs should the US finally start to raise interest rates. Against this wall of worry, even the very best Asia ex Japan funds have lost money over the last few months but the First State Asia Pacific Leaders fund, our top rated fund in this area, which is managed by industry veteran Angus Tulloch, has proved resilient and fared significantly better than the competition.
“Tulloch, whose Edinburgh-based team has now been rebranded as Stewart Investors, is conservative in his approach to investing in these volatile markets and this is currently reflected in 9.2% cash weighting and just 1.7% exposure to China which represented 21.6% of the Index. The fund is however heavily overweight exposure to India (24.5% of the portfolio), which is seen as a relative bright spot as Prime Minister Narendra Modi pursues a reform programme.”
4. HSBC American Index
“With the S&P 500 Index being notoriously difficult to beat, many investors look instead to index trackers for US equity exposure. This fund has low-cost on-going charges of just 0.18%, minimising the drag impact of costs.
“Investors who are cautious on the US market might however consider alternatives to traditional index-tracker funds, which weight holdings according to company size, and consider so-called ‘smart beta’ passive funds which weight companies based on fundamental factors such as their revenues, cash flow, dividends and balance sheet. One example is the PowerShares FTSE RAFI 1000 UCITS ETF. ”
5. Threadneedle European Select Fund
“Europe is a market that has found favour with many investors this year with the European Central Bank implementing a stimulus programme, low energy costs benefitting consumers by putting more cash in their pockets and signs of recovery. The five-star rated Threadneedle European Select fund remains one of the most popular choices with our investors. Manager Dave Dudding invests predominantly in large, blue-chip companies with strong competitive advantages and consistent above-average earnings growth. Well recognised brands often fit this profile and top holdings include cosmetics giant L’Oréal, Unilever (whose vast range of brands includes Bovril, Marmite, Comfort, PG Tips and both the Wall’s and Ben & Jerry’s ice cream brands) and Richemont (owners of Cartier, Mont Blanc and Jaegar).”
“Dave Dudding’s focus on dependable businesses has proved particularly robust in difficult market conditions.”
6. Threadneedle UK Equity Income
“This perpetually popular fund has long held a five-star rating from our research team as a core choice for UK equity income exposure. Managed on a total return basis by Richard Colwell, stocks are held both for their dividend and growth potential. Top holdings in the fund include AstraZeneca, Imperial Tobacco Group, GlaxoSmithKline and BT Group. In contrast the fund has been underweight banks, with none making it into the top ten holdings.”
7. Liontrust Special Situations
“In our recent article Who should you turn to in turbulent times? we identified the managers of this fund, Anthony Cross and Julian Fosh, as having a very strong track record in down markets which we believe is an outcome of an investment approach that they describe as “Economic Advantage”. The approach aims to identify businesses with resilient characteristics such as ownership of intellectual property rights (e.g. patents), recurring rather than transactional income streams, brands with high customer loyalty or that have strong distribution channels that enable them to deliver sustained profit growth and are difficult for competitors to replicate. These businesses which can be large, small or medium sized businesses are typically less sensitive, though not immune, to prevailing economic conditions.”
8. AXA Framlington UK Select Opportunities
“We’ve long backed Nigel Thomas who has now been managing money for over three decades, establishing one of the strongest records in the UK All Companies sector along the way. At £4.3 billion in size, this fund is certainly no minnow; however we believe that it can continue to add value as it typically invests a significant proportion of the portfolio in medium sized companies and smaller companies, which together represent around half of the fund. Nigel Thomas is supported on the fund by Chris St. John, whose AXA UK Mid Cap fund we also rate.
“The fund currently favours industrial and consumer service companies and is underweight banks, oil and gas and has no exposure to mining stocks or utilities. Top holdings include ITV, sports betting exchange Betfair, which has agreed a merger with rival Paddy Power and online property site Rightmove.”
9. Henderson UK Property
“The Henderson UK property fund invests in quality commercial properties with strong tenants on long leases. 58% of the exposure is in London and South East England and around 31% of the property is exposure to retail outlets, 28% office blocks and 15% industrial properties. Its top holdings include 440 The Strand, the home of Coutts Bank, and a Travelodge in Kings Cross, London. The tenant quality across the portfolio is also high with the largest being Royal Bank of Scotland, B&Q, Sainsbury’s and Tesco. However, investors’ considering property funds should note that this market can be illiquid, as the fund holds considerable exposure to liquid assets including cash and property-related shares.”
10. AXA Framlington Biotech
“After a meteoric rise over the last five years, shares in biotechnology companies have had a rough ride of late as investors have become more risk averse and Hillary Clinton, the front runner to be the next US President, has vowed to curb high drug prices. It’s a reminder of the risks of investing in a very specialist, albeit exciting, area. The AXA Framlington Biotech fund is one of the few authorised funds focused on biotech, with exposure to around 70 stocks. Although the fund invests globally, some 86% of the portfolio is invested in the US, the world leader in medical science. The fund has large holdings in American companies Celgene Corp, which manufactures cancer drugs, and Gilead Science Inc, which concentrates on producing antiviral drugs to treat sufferers of HIV. Investors should remember that investment in the biotech sector is very high risk.”
At a glance: The most popular funds selected by clients using Tilney Bestinvest’s Online Investment Service in September 2015:
Find out more about how we rate funds here: /investment-research/our-research-approach