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Where did our clients invest in August 2016?

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 August.

Jason Hollands Jason Hollands
21 September 2016

The top choices were:

1. Fundsmith Equity

The Fundsmith Equity fund, managed by the forthright City big gun Terry Smith, has once again proved the most popular fund with our clients. Smith recently extolled the investment strategies of Warren Buffet and Charlie Munger in a column for the Financial Times, drawing attention to one of Buffet’s most famous quotes: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” It’s a philosophy he ardently believes in, as he articulated his invest-and-hold strategy as: “Buy shares in good companies; don’t overpay; do nothing.” To that extent, the fund invests in quality growth companies across global developed markets. It currently has 61.5% exposure to US companies and 22.1% to the UK, so exposure to dollar earnings has helped cushion the fund from the slide in sterling this year. Top contributors to performance in August were animal healthcare multinational Idexx and Intercontinental Hotels. American food and beverage manufacturers JM Smucker and Dr Pepper Snapple made up some of the fund’s top detractors.

2. Woodford Equity Income

In second place was the eponymous CF Woodford Equity Income fund, managed by former Invesco Perpetual alumni Neil Woodford. Rarely out of the press for long, the multi-millionaire fund manager hit the headlines in August after announcing he was scrapping the practice of paying staff bonuses at Woodford Investment Management. His flagship fund generally focuses on resilient businesses that are less affected by the global economic cycle and more in charge of their own destiny. Current 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.

3. Stewart Asia Pacific Leaders

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 baton for managing the fund has now passed from Angus Tulloch to David Gait, but the investment approach remains consistent and the team continues to be particularly favourable towards India, with the fund holding a 24.7% weighting towards the country.

4. 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. 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.

5. 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. Indeed, according to research firm Morningstar, of the actively managed funds that invest in US larger companies only 9.5% managed to beat the S&P 500 Index in the five years to the end of August – the worst five-year run for active managers since 1999. This tracker fund has a very low ongoing charges figure of 0.08%. After hitting record highs in July, the index navigated fairly serene waters over August, as US equities saw the narrowest trading range since 1965. 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.

6. Liontrust Special Situations

Managed by Julian Fosch 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 characteristics that their competitors struggle to replicate, 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.

7. Threadneedle UK Equity Income

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.

8. Fidelity MoneyBuilder Income

Ian Spreadbury, the long-term manager of the Fidelity MoneyBuilder Income fund, was last year joined by Sajiv Vaid, formerly of Royal London, as co-manager of the fund. Spreadbury was keen last month to point out to the press that things have got off to a great start, saying that the pair share “similarly inquisitive minds.” The fund itself invests in a diversified portfolio of predominantly quality UK corporate bonds. Spreadbury remains confident that corporate bond spreads remain attractive, despite the growth outlook for the UK deteriorating in recent months.

9. 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.

10. Legg Mason Japan Equity

Japan is a market in focus again as last month Japanese Prime Minister Shinzo Abe announced a 28 trillion yen fiscal stimulus package to boost the country’s stuttering economy. The markets are watching for any further news over what the Bank of Japan might do in monetary policy terms.

The Legg Mason Japan Equity fund is the top-performing Japan fund over multiple timeframes and is managed by Tokyo-based Hideo Shiozumi, a veteran with three decade's experience managing Japanese equities. His focus is ‘New Japan’, growth companies in sectors such as healthcare and information technology, that can meet the widespread challenges presented by such an aging population. 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%.

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 press release 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.

Bonds issued by major governments and companies will be more stable than those issued by emerging markets or smaller corporate issuers; in the event of an issuer experiencing financial difficulty, there may be a risk to some or all of the capital invested. Please note that historical or current yields should not be considered reliable indicators of future performance.

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.