Where did our clients invest in February?

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 February.

Jason Hollands
14 March 2017

As we move into the final weeks of the tax year, investors are focusing on using their valuable tax-free allowances such as ISAs and pensions. In February, funds primarily focused on equities proved most popular with Bestinvest clients and once again the list was dominated by funds managed by seasoned active managers. It was notable that Neil Woodford’s Equity Income fund, which has regularly been in the top two slots, has slipped down the rankings. This is likely down to fans holding fire for the launch of the new Woodford Income Focus fund later this month, but could partially reflect a tougher year for performance.

1.  Fundsmith Equity

The most popular fund with our clients in February was – yet again – the Fundsmith Equity fund. Bestinvest clients just can’t get enough of tell-it-like-it-is manager Terry Smith who recently came in to update us on the fund. Smith believes that trying to predict market and economic events is a fool’s game: “I deploy most of my time and effort on things I can control. Two of those are whether we own good companies and what valuation we pay to own their shares.” He has an invest-and-hold strategy focused on a concentrated portfolio of 29 quality growth stocks from across developed markets. He sums this up as: “Buy shares in good companies; don’t overpay; do nothing.” He currently has Microsoft, Pepsico and Paypal among his top ten holdings. The fund has a high weighting to consumer staples, 35.1%, healthcare, 28%, and technology, 23.3%.

2.     Tilney Bestinvest Growth Portfolio

The Tilney Bestinvest Growth Portfolio was the second most popular fund and is a Ready-made Portfolio for investors with a long investment time horizon. It invests into a portfolio of funds and ETFs selected by our research team and includes the likes of JO Hambro UK Opportunities, Liontrust Special Situations, Majedie UK Equity, Vanguard S&P 500 ETF and Artemis European Opportunities. 56% of the portfolio is invested in equities, with the remainder in absolute return funds, bonds, commercial property and gold.

3.     Stewart Asia Pacific Leaders

There is understandably a fair amount of caution towards emerging markets and Asia at the moment given President Trump’s views on raising import tariffs to protect American jobs. One fund in this space that continues to draw support from clients however is Stewart Asia Pacific Leaders, a longstanding top-rated fund. The fund, managed by David Gait, focuses primarily on investing in large companies with sustainable cash flows and robust balance sheets. Its highest weighting remains India (30.3%) followed by Taiwan (17.6%) but it has negligible exposure to China where concerns persist about the rapid growth of debt.

4.     Liontrust Special Situations

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.

5.     Threadneedle UK Equity Income

The Threadneedle UK Equity Income fund is another popular choice for core UK equity exposure. Manager Richard Colwell has a pragmatic approach, focused on total return rather than yield per se. The fund is currently very underweight financials and overweight industrials compared to its FTSE All-Share benchmark. Companies within its top ten holdings include healthcare multinationals GlaxoSmithKline and AstraZeneca, and consumer goods company Unilever, which recently foiled a potential bid from Heinz Kraft.

6.     HSBC American Index

US equity funds have seen increased attention since the election of Donald Trump, as investors bet on a combination of aggressive tax cuts, deregulation and massive infrastructure spending to boost the US economy. The HSBC American Index tracker fund that follows the S&P 500 index, has been the most popular choice for Bestinvest clients investing in the U.S. The US stock market is notoriously hard for active fund managers to beat and this tracker has a very low ongoing charges figure of 0.08%.

7.     Artemis Global Income

The Artemis Global Income fund has returned to favour recently with clients. Manager Jacob de Tusch-Lec takes an unconstrained approach to investing in global equities, unencumbered from shadowing an index. This means its top holdings are typically very different from competitor funds, which are usually dominated by giant US companies. Instead, this fund's top holdings include the likes of Norwegian insurance company Storebrand, Italian communication infrastructure company EI Towers, Italian telecom company INWIT and US lender Zions Bank. This fund has a much higher weighting to medium-sized and smaller companies than most global funds. Tusch-Lec believes the global economy is shifting from a deflationary to reflationary environment and has adjusted the portfolio to reflect this.

8.     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.

9.     Woodford Equity Income

Dropping down to ninth spot is the eponymous CF Woodford Equity Income fund, managed by Neil Woodford. While his flagship fund does dabble in riskier small growth businesses, it primarily focuses on resilient companies that are less affected by the global economic cycle 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.

10.     Threadneedle European Select

The Threadneedle European Select fund is consistently in our top 10 list. The fund retains a bias to the consumer goods, healthcare and consumer services sectors. 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 the world’s largest brewer Anheuser-Busch InBev and beverage company Pernod Ricard.


Investors spy an opportunity in BT’s woes

While Bestinvest clients predominately choose funds, they can also purchase shares and investment trusts through the service. The most popular purchase in February was BT, which saw its shares slide by 20% in late January on the back of an accounting scandal in its Italian division. The shares have partially recovered since and have recently rallied on news of a deal with regulator Ofcom to split out its Openreach network from the main business, but importantly will see it retained within the group. High octane but low fee Scottish Mortgage Investment Trust, which recently entered the FTSE 100 Index and cut its management fee to Baillie Gifford further, also appears prominently.

 

Important Information

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.

Investment trusts are similar to funds in that they provide a means of pooling your money but they are publicly listed companies whose shares are traded on the London Stock Exchange. The price of their shares will fluctuate according to investor demand and changes in the value of their underlying assets.