With the end of the tax year fast approaching, the coming weeks are usually high season for investors choosing investments for their ISAs and pensions.
But with so many funds and mutual funds on offer, offering exposure to a plethora of sectors and regions, it can be difficult for the everyday investor to determine the best place to put their money.
Twice a year, the investment platform Bestinvest publishes its list of the best funds, which includes traditional open-ended investment funds – called OEICs – investment trusts and ETFs.
Bestinvest has released its annual Best Buys list, which selects the funds it believes will outperform their peers and the benchmark
The list of 127 strong includes 105 funds managed by well-known fund management companies as well as smaller boutique outfits, including 30 investment trusts.
There are also 22 low-cost “passive” options, which include 10 exchange-traded funds (ETFs), two exchange-traded commodities (ETCs), and 10 index funds.
For those who want to ensure that their investments do not go against their values, there are 28 investment opportunities in sustainable, responsible or environmental, social impact and governance strategies.
There are five new funds since Bestinvest’s publication last year: Allianz Technology Trust, Murray Income Trust, Fulcrum Diversified Absolute Return, Ninety One Global Environment, Fidelity European.
But seven funds highlighted on last year’s list did not make the cut, including Fidelity Emerging Markets, Liontrust Sustainable Future Monthly Income Bond and FP WHEB Sustainability.
Bestinvest’s main funds include Blackrock UK Income, Artemis UK Select and Baillie Gifford Global Discovery.
The list highlights funds that, according to the investment platform, can outperform their peers and the respective benchmarks.
Bestinvest experts follow the “10 Commandments” when making their choices, favoring managers who are not constrained by tight benchmarks, have a clearly defined approach, invest personally in their own funds and are willing to limit the size of their funds if it starts to hamper the way they are managed.
Jason Hollands, Managing Director of Bestinvest, said: “When you look at each sector, whether it’s North America, UK small business funds or emerging markets, each will typically have a dedicated team of around six of our investment managers involved in researching and monitoring the investments available – this means that an enormous amount of time and expertise is spent finding the right funds to feature in the top funds list.
“Our investment specialists not only meet with fund managers and crunch the numbers to fully understand the approach taken, but also analyze fund size, liquidity constraints and the risk management process.”
British funds
Political and economic events, including the disastrous mini-budget, rocked UK markets last year, with more domestically oriented indices suffering a sharp drop in value.
But the UK stock market has consistently outperformed peers such as the S&P 500 in 2022 thanks to its minimal exposure to technology companies and a higher number of banking, energy and mining stocks.
“British industrial sectors that have struggled include tech stocks, punished for high valuations, and homebuilders,” Bestinvest said.
“Retailers also struggled as cautious consumers watch the books, while airlines stagnated as the expected post-lockdown travel boom failed to take off.
“Financial stocks, such as banks, held up better as rising rates boosted margins, while pharmaceutical stocks were also healthy. Energy stocks such as BP and Shell as well as mining companies benefited from soaring commodity prices.
Concerns about high interest rates and a possible hit to corporate profits remain this year, with the UK the only economy to fall into recession this year, according to the IMF.
But Bestinvest said there are still growth and income funds that could outperform the market.
Among the UK growth funds is Liontrust UK Growth, which owns the majority of FTSE 100 stocks like Covid vaccines group AstraZeneca and brewer Guinness Diageo.
Mercantile Investment Trust also makes the list, with its diversified portfolio of UK mid- and small-cap companies that Bestinvest experts describe as “the UK market leaders of tomorrow”, like Watches of Switzerland.
“The trust has a good track record of outperforming the FTSE 250 and its most direct mid-cap peers,” says Bestinvest.
At the same time, the recent shift from high growth to value stocks should benefit the income sector, according to the report.
Among the top UK income funds, Bestinvest picked Murray Income Trust, which is run by abrdn and invests in companies like consumer goods giant Unilever and miner Anglo American, and has increased its dividend every year since 1973.
“Manager Charles Luke seeks high-quality, large-cap companies with strong balance sheets, experienced management, strong corporate governance, attractive valuations and robust earnings potential,” the report said.
Bestinvest also highlighted Montanaro UK Income, which invests in a wide range of small- and mid-cap companies with a market value of up to £10 billion, such as storage company Big Yellow.
“Manager Charles Luke seeks high-quality, large-cap companies with strong balance sheets, experienced management, strong corporate governance, attractive valuations and robust earnings potential,” the report said.
North American Funds
US markets have seen their fair share of hits in 2022, with the S&P 500 ending last year down more than 19% as tech giants such as Microsoft, Amazon and Apple all struggled.
“In an era of low interest rates and low growth, the high growth rates that the tech sector offers are highly valued by investors, but when rates rise, they are less willing to pay high prices for them. tech stocks,” Bestivest said.
“Other corporate giants such as JP Morgan and General Motors have also backtracked.”
Although there are signs of improvement in the US economy, with inflation starting to decline and the Fed slowing the pace of interest rate hikes, 2023 could be another volatile year for US markets.
But Bestinvest says opportunities remain in such a broad and deep market.
“Energy, defense and healthcare stocks can look attractive with even tech stocks in the frame with their cheaper valuations,” he added.
Among the top picks is Premier Miton US Opportunities, which invests in North American companies of all sizes and across all industries.
Besinvest experts assess its philosophy that running a focused portfolio of ‘boring’ stocks with consistent, long-lasting profits is the best way to beat the market.”
London boutique Findlay Park also made the list, with holdings such as tech titan Microsoft and Warren Buffett’s Berkshire Hathaway.
“The fund has an exceptional track record over time, particularly in protecting capital in difficult market conditions,” the report said.
You can read the full list of Bestinvest’s top funds here
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