Many people are drawn towards the high returns achieved in the stock market but are not able to invest because they don’t know where to start or don’t have the time to do the required analysis. Fortunately for them, there are fund manager out there that can look after your investments for you. There is this long-standing debate that tracker funds outperform most fund-managers over the long-term. Whilst this is true, there are a select few manager out there that have consistently beat the market time-after-time. The three managers I have picked below are the are the best of the best and whom I feel are part of a select group of star fund managers.
Although investing through a fund may imply higher costs than buying shares on your own (especially for larger investment amounts), funds have the benefit of allowing you to easily diversify your portfolio, easily liquidate any shareholding you have and ensure and you are able to purchase small amounts so it’s easy to get started. These actively managed funds are especially favorable for those that are new to the world of investing or those that lack the time to do the required due diligence before the purchase of any stock.
The three best Unit Trust Funds or Open Ended Investment Companies (OEIC) as they are now called and the ones I would advise you to buy into this year are listed below:
1) Fundsmith Equity Class I – Accumulation (GBP)
- The Fund: The fund targets long-term growth by investing in equities of large and liquid companies word-wide. The overall strategy is to invest in quality companies and hold for the long-term. Quality companies are identified as those that are able to sustain high rates of return often through market power and intangible assets such as branding that deters competition.
- The manager: Terry Smith is arguably the best find manager in the country at the moment. He has enjoyed a long and successful career in finance. He has consistently beaten the market over time whilst also providing returns that have low volatility and which have a degree of protection against falling markets.
- Geographical Split: North America 62%, UK 22%, Europe 16%.
- Capitalization Split: Large Companies 75%, Mid size companies 23%, Small companies 2%.
- Sectors: Consumer Staples 45%, Healthcare 17%, Technology 16%, Consumer Discretionary 12%, Industrials 7%, Money Market 3%.
- Top 10 holdings: Microsoft, Reckitt Benckiser Group, Dr Pepper Snapple Group, Stryker Corp, Unilever, Imperial Tabacco Group, Kone Oyi B, PepsiCo, Becton Dickinson & Co and Intercontinental Hotels Group.
- Returns: 2014=29.35%, 2013=19.23%, 2012=16.05%, 2011=8.75%. It has returned over 100% since inception just under 5 years ago.
- Net Charge : 1%
- My View: Most of my money that is invested in actively managed funds is with Fundsmith. I for one think that the market, especially in the US will make very little gains or will fall this year. Thus, most US holdings I have at the moment are with Fundsmith as the defensive nature of the firms that are in this fund will be able to withstand any stock market fall better than most. If the stock market is to have another stellar year as a result of the Quantitative Easing spill-over effects from Japan and the EU, this fund will reward you handsomely – after all, investing is all about risk.
2) CF Woodford Equity Income Class Z – Accumulation (GBP)
- The Fund – This fund is centered around large and medium cap UK companies. The strategy of the fund is to target long-term growth as well as target yield of at least 10% above the UK stock market.
- The manager : Neil Woodford comes only second to Terry Smith in terms of UK fund managers. Neil built up his reputation by managing the Invesco Perpetual fund which delivered an average of 13% a year over 25 years. That is some record and that is why Neil’s newly launched fund is in this list.
- Geographical Split: UK 85%, Europe 10%, North America 5%.
- Capitalization Split: Large Companies 69%, Mid size companies 17%, Small companies 14%.
- Sectors: Healthcare 33%, Consumer Goods 19%, financials 16%, Industrials 15%, Telecommunications 6%, Utilities 6%, Consumer Services 3%, Technology 1%.
- Top 10 holdings: AstraZeneca, Imperial Tobacco Group, GlaxoSmithKline, British American Tobacco, BT group, Capita, Reynolds American, BAE Systems, Roche Holdings AG Part Cert, Rolls-Royce Holdings.
- Returns: This fund only launched in June last year so can’t give average yearly returns. The fund has returned over 7% over those past 6 moth thus giving an estimated annualized return of 12%.
- Net Charge: 0.75%.
- My View: The current UK stock market is still undervalued unlike many others in the developed world. You could go and invest in a FTSE tracker fund but with Neil Woodfords record, my money is with him. I believe that Neill will continue his immense record over many years to come. Another point to note is that both Terri Smith and Neil Woodford have defensive minded funds and maybe this is an indication of the year we have ahead?
3) Jupiter Japan Income Class I – Accumulation (GBP)
- The Fund: The fund revolves around large and medium cap stocks of companies that generate high and increasing levels of cash-flow. This is what caught my eye and this strategy will be extra beneficial considering the Quantitative Easing package the Bank of Japan is currently unleashing. The fund uses various other techniques to screen stocks such as a companies cash-flow generating ability, earnings revision and price momentum. The manger also uses technical analysis to time investment decisions. Despite the word ‘Income’ in the name of the fund, yield is not specifically a target factor of the fund but the investment style of the manager is likely to produce some yield.
- The manager: Simon Sumerville has a lot of experience in the world of equity investment and has been working in Japanese equity markets for 16.5 years. Over this period the average monthly return relative to the benchmark index has been +0.21% thus showing that he is a manger worth investing with.
- Geographical Split: Japan 100%.
- Capitalization Split: Large Companies 78%, Mid size companies 22%.
- Sectors: Industrials 30%, Financials 23%, Consumer Goods 20%, Consumer Staples 11%, Telecommunications 5%, Technology 5%, Healthcare 3%.
- Top 10 holdings: Toyota Motor Corp, Sumitomo Mitsui Financial Group,Bridgestone Corp,Tokio Marine Holdings, Sekisui Chemical Co,Sumitomo Mitsui Trust Holdings, Nissan Chemical Industries, Omron Corp, Itochu Corp, andSeven & I Holdings.
- Returns: 2013 : 18.43%, 2014 : 2.53%.
- Net Charge : 1%
- My View: I hold the view that the Japanese stock market will deliver the best returns to investors relative to risk this year. Bank of Japans Quantitative Easing program is to big to ignore and I have even written an article on three reasons on why you need to invest in Japan in 2015 . Quantitative Easing benefits certain sectors of the economy more than others such as industrials and financials and this is why I believe that this fund will beat a tracker fund of the Japanese stock market (Nikkei 225).
For the more adventurous, and those of you that want to take a calculated risk, the Neptune Russia & Greater Russia Class C – Accumulation (GBP) fund might be a fund for you. This is very high risk at the moment as this fund encapsulates both of last years big losers, Russia and energy stocks. And because this fund lost so much last year, it is worth a punt as both Russia and energy prices will bounce back eventually.
I hope the above article has been helpful to you and help in your decision making when investing this year. Make sure to always do your due diligence before making any investment and let’s hope 2015 will be a prosperous year for the both of us!
On a side note, for those of you that are interested in tracker funds, I have picked out a few trackers below which I think will do well:
- Vanguard Japan Stock Index. Annual Charge = 0.23%. As mentioned above, I think Japan will have a stellar year this year. If you believe in passive rather than active fund management then this is the index for you.
- DB X-Trackers DAX UCITS ETF – Annual Charge = 0.09%. I believe that the second best market performing market this year after Japan will be Germany. This is a great index ETF that gives exposure to the German stock Market (DAX). Germany will greatly benefit from QE being carried out by the European Central Bank. Apart from this, the DAX has some great companies with liquid balance sheets and very good free cash flows.
- iShares MSCI World Minimum Volatility ETF (MVOL) OCF. Annual Charge = 0.3%. I believe that the year ahead will bring lots of volatility to the markets and thus a tracker which aims to limit volatility will be great for the year ahead. The fund is mostly based around defensive stocks in the healthcare, financial services and consumer staples sectors.