The top 10 investment funds that were most popular with our clients in 2016
2016 has been a rollercoaster year for investors, in which the UK voted to leave the EU and reality TV star Donald Trump was elected the next US president. We reveal which investment funds came out on top in 2016 and were the most popular funds among investors who use our Online Investment Service.
Top equity fund managers prove popular
Bond funds were largely absent from our monthly roundups of the top-selling investment funds selected by our clients. Property funds dropped off the radar too. Instead we saw a very clear preference for highly seasoned active equity fund managers across most sectors. The exception was North America, where clients have firmly favoured a low-cost passive investment approach. This is understandable given the abysmal track record of active fund managers in this market.
Here are the top 10:
At the top of the popularity table is Fundsmith Equity, managed by City veteran Terry Smith. He’s developed a considerable fan club of investors who like his no nonsense buy-and-hold approach and the fact that he doesn’t sit on the fence with his views. The fund’s performance has been extremely impressive since launch. The fact that Mr. Smith ploughed an additional £115 million of his own spare cash into the fund during the year – taking his personal interest in the fund to over £200 million – is a big vote of confidence in the portfolio of global blue chip companies he holds.
Woodford Equity Income
In second place was Neil Woodford’s CF Woodford Equity Income fund – towering at £9.3 billion in size despite only launching two years ago. Second place is quite an achievement in a year when, according to Investment Association data, UK equity funds have been consistently out of favour with retail investors.
Stewart Asia Pacific Leaders
Emerging market equities and Asian markets have had a tumultuous 2016, but they rebounded strongly over the summer after a shaky start to the year. So it is unsurprising to see Stewart Asia Pacific Leaders, a longstanding top-rated fund, have a high placing in the list. Management now lies firmly in the hands of David Gait after Angus Tulloch handed 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 the next largest weighting (of 18.5%).
Threadneedle UK Equity Income
In fourth place the Threadneedle UK Equity Income fund is another great choice for core UK equity exposure. Manager Richard Colwell has a 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 he has increased its position in AstraZeneca, while reducing its stake in retailer Marks and Spencer.
Threadneedle European Select
Threadneedle European Select manager Dave Dudding had co-manager Mark Nichols join him on the fund this year. 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. As such it invests heavily in firms such as Unilever, the multinational consumer goods company, and the world’s largest brewer Anheuser-Busch InBev.
Liontrust Special Situations
Managed by Julian Fosh and Anthony Cross, Liontrust Special Situations has long held a highly coveted five-star rating from our research team. It 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, such as 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.
HSBC American Index
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.
AXA Framlington UK Select Opportunities
AXA Framlington UK Select Opportunities is managed by veteran stockpicker Nigel Thomas, who has been managing funds in the UK All Companies sector for over 28 years. Mr. Thomas has revealed his simple tips for good fund management including “using your eyes and ears” and having “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.
Legg Mason Japan Equity
Legg Mason Japan Equity is the top-performing Japan fund over multiple timeframes. Tokyo-based Hideo Shiozumi manages it. He is a veteran with three decades' experience managing Japanese equities. His focus is ‘New Japan’ – growth companies in sectors such as healthcare, and information technology companies that can meet the widespread challenges presented by such an aging population. This year UK investors in Japanese equity funds have benefited heavily from currency movements as the yen strengthened sharply versus sterling.
Standard Life Global Absolute Return Strategies
Industry-wide data suggests targeted absolute return funds were very popular this year with overall retail investors. But only one such fund, the Standard Life ‘GARS’ fund, made it into the top ten choices among our clients. GARS is the market leader in this space, though there are now a number of rival funds challenging it from the likes of Aviva and Invesco Perpetual.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance.
Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.
Underlying investments in emerging markets are generally less well-regulated than the UK. There is an increased chance of political and economic instability with less reliable custody, dealing and settlement arrangements. The market(s) can be less liquid. If a fund investing in markets is affected by currency exchange rates, the investment could both increase or decrease. These investments therefore carry more risk.
Smaller companies shares can be more volatile and less liquid than larger company shares, so smaller companies funds can carry more risk. The property market can be illiquid; consequently, there can be times when investors will be unable to sell their holdings. Property valuations are subjective and a matter of judgement.
Tracker funds track the performance of a financial index and as such their value can go down as well as up, much like shares, and you can get back less than you originally invested. Some are more complex so you should ensure you read the documentation provided to ensure you fully understand the risks.