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Where did our clients invest in July 2016?

Jason Hollands, Managing Director at Bestinvest comments on the funds that proved most popular with clients using the Bestinvest Online Investment Service in July.

Jason Hollands Jason Hollands
05 August 2016

While recently released figures from the Investment Association revealed record outflows in the month of June, when the UK’s referendum on its EU membership dominated the news, it is investor activity for July that will truly reveal the current mind set of the UK’s retail investors. After an initial slide in share prices, the markets quickly recovered, defying gloomy predictions of a post-Brexit meltdown. But pockets of stress were evident, notably for property investors, with a number of commercial property funds deciding to suspend dealing. This was so that large outflow requests from investors wouldn’t force them into a disorderly sale of their assets

When it came to our own clients, there was no evidence of panic selling in the aftermath of the referendum. Rather there was a step up in buying activity, as some clients sought to take advantage of the immediate dip and fears of a more dramatic slide evaporated. July saw a clear preference for equity focused funds over other asset classes and a continued preference for seasoned fund managers over rising stars.

Much as they have for the last calendar year, equities continue to make up the majority of our list of most-popular funds*. Fundsmith Equity and Woodford Equity Income remain perennially popular, and July also saw the return of two five-star rated Columbia Threadneedle funds (European Select and UK Equity Income) to our top 10. Every single fund in July’s top ten rankings has previously appeared at least three times in our most-popular fund tables over the last six months.

The top choices were:

Fundsmith Equity
City hard hitter Terry Smith, manager of the Fundsmith Equity fund, is well known for both his forthright views and his investment style, which he has described as “buy good companies, don’t overpay, and then do nothing.” The fund invests in quality growth companies across global developed markets. It currently has 61.1% exposure to US companies and 22.4% to the UK, so exposure to dollar earnings has helped cushion the fund from the slide in sterling. Top contributions in July came from Massachusetts-based laboratory instrument manufacturer Waters and technology giant Microsoft. British consumer multinational Reckitt Benckiser and Fortune 500 medical technologies firm Stryker made up some of the top detractors.
Woodford Equity Income
Neil Woodford’s ‘rock star investor’ status means his words carry serious weight, and he has consistently aimed to reassure his investors that the prospects for the companies held within his Woodford Equity Income fund would remain unaltered by Brexit. But he has also warned of bigger “interlinked challenges” that are working to supress global economic growth. These include fundamental flaws in the Eurozone, liquidity issues in emerging markets, the credit bubble in China and the threat of prolonged deflation.

With all this in play, he prefers an investment strategy focused on resilient businesses less affected by the global economic cyclical and more in charge of their own destiny. These include tobacco companies such as Imperial Brands, British American Tobacco and Reynolds American, as well as health care multinationals AstraZeneca and GlaxoSmithKline.

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.
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.
HSBC American Index
The HSBC American Index fund follows the S&P 500 index, which is notoriously hard for active managers to beat. Returns for UK investors in July were boosted by the strong performance of the US dollar compared to sterling and the S&P 500 Index itself hitting a record high. This tracker has a very low ongoing charges figure of 0.08%.
Stewart Investors Asia Pacific Leaders
The Stewart Asia Pacific Leaders fund changed hands last month in a long-flagged smooth transition process, with veteran fund manager Angus Tulloch stepping back to let colleague David Gait take the lead. Gait could hardly be described as green, however, having managed the Pacific Assets investment trust since 1997, with an excellent track record across a number of funds.

The fund continues to have a positive stance on India, with a 23.9% weighting. Its two largest company holdings however are Brambles Limited, an Australian supply-chain logistics group, and Taiwan-based TSMC, the world’s largest independent manufacturer of microchips.

Threadneedle European Select
The Threadneedle European Select fund makes a return to our top 10 list at a time when manager Dave Dudding is positive on opportunities for his fund, despite volatility being generated by geopolitical uncertainty in Europe and beyond. With interest rates set to remain low, he believes a resurgence in company M&A activity is only around the corner as companies put cash to work.

Dudding seeks out companies with strong brands that are less sensitive to price-based competition and as such the fund invests heavily in firms such as Unilever, the multinational consumer goods company, and the world’s largest brewer Anheuser-Busch InBev.

Threadneedle UK Equity Income
This fund has long held a coveted five-star rating and continues to keep delivering strong performance, making it a great choice for core UK equity exposure. Manager Richard Colwell currently has a defensive skew to the Threadneedle UK Equity Income fund, with large holdings in tobacco giant Imperial Brands and healthcare groups AstraZeneca and GlaxoSmithKline.
AXA Framlington UK Select Opportunities
Nigel Thomas has been managing in the UK All Companies sector for over 28 years and recently revealed his simple tips for good fund management: “using your eyes and ears” and “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 AXA Framlington UK Select Opportunities fund’s top holdings include sports gaming group Paddy Power Betfair, ITV and Dixons Carphone.
Legg Mason Japan Equity
The Legg Mason Japan Equity fund is the top-performing Japan fund over multiple timeframes. It focuses specifically on growth companies of the so-called ‘New Japan’, consisting of healthcare and information technology companies rather than mature industries. Tokyo-based manager Hideo Shiozumi believes in a “British brand of old-style stock picking”, which he describes as focused on people, less worried about numbers, and suspicious of short-term trading. 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 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 may carry varying levels of risk depending on the geographical region and industry sector(s) 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.