Many of our readers are feeling bullish or looking for funds with the best chance of making the most money over the long term, looking at the majority of the funds they picked. You can find the first article here.
Here we look at four more funds our readers are looking at adding to their 2014 ISA portfolio.s
Newton Global Higher Income
One of our readers is looking at the £4bn Newton Global Higher Income fund, run by James Harries.
The fund has had a poor 12 months which has pulled down its longer-term performance figures, although it beat the average returns in the IMA Global Equity Income sector for seven years before 2013.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Even though it was fourth quartile last year, it did return 15.46 per cent, however, so the period wasn’t a disaster for investors.
The FE Research team still include the portfolio in the FE Select 100 list of the country’s leading funds and use it in their model portfolios.
FE Research analyst Amandine Thieree explains that the main problem Harries has had over the past year is that the fund is set up to outperform in falling markets while last year saw a cyclical recovery in which more aggressively positioned portfolios excelled.
"I’d say that is still a good fund to hold and don’t forget that it’s an income fund, so in that regard I will always expect it to have a cautious component as it needs stability," she said.
Chris Wise, investment director at Gemmell Financial Services, says that he too continues to believe in the fund despite its recent underperformance.
The cautious positioning stems from the house view of Newton which is sceptical of global markets’ recent rise, he explains.
Investors should look to blend strategies in their portfolio and the Newton Global higher Income fund is a good foil for some of the more punchy funds in his clients’ portfolios – and those chosen by our readers.
The fund is yielding 3.98 per cent and has clean share class ongoing charges of just 0.8 per cent. It is available through Trustnet Direct.
Axa Framlington Biotech
Axa Framlington Biotech was the most purchased fund by Barclays Stockbrokers’ clients in February. This followed a year, 2013, in which the fund was one of the top-performing on the UK market.
However, investors may well be running the risk of investing in this fund at the top of the market. The tendency of retail investors to invest in things after a period of outperformance has been well-noted, and FE Trustnet looked at three areas that look toppy in a recent article.
Biotechnology could be one to add to the list if recent falls in the US NASDAQ Biotech index continue.
The index fell 8.28 per cent last week and is down 11.4 per cent since its peak in March. The AXA Framlington fund has more or less matched this, unsurprisingly given its 87.46 per cent weighting to the US market.
Performance of fund vs index over 1yr
Source: FE Analytics
Gilead Sciences is the fund’s top holding, at 8.7 per cent, and this stock was at the centre of the recent falls after it received an open letter from the US FDA querying its pricing. This story has yet to play out, which makes it a risky area to be investing in.
In fact, many investors seem to have become wary of the sector last year judging by the discount which opened up on the flying Biotech Growth Trust.
It remains to be seen whether this caution was warranted, but at the moment biotech looks like a risky area to invest.
AXA Framlington Biotech is managed by Linden Thomson and has five FE crowns. It has ongoing charges of 0.84 per cent on the clean share class.
Standard Life UK Equity Unconstrained
Ed Leggett’s Standard Life UK Equity Unconstrained fund is the best performing UK equity fund since the bottom of the market in 2009.
Data from FE Analytics shows that the fund has made 357.84 per cent over the past five years as the average IMA UK All Companies fund has made just 121.71 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Some investors might be wary of buying an aggressive fund like this after such a prolonged bull market, but Wise says that there’s still a strong case for holding it.
“It’s probably fair to say that with the rising markets over the last few years markets are probably quite fairly valued,” he said.
“Therefore you might want to look at more stock-picking investments. Where would I go for stock picking ability? Standard Life UK Equity Unconstrained has done very well with their top 40 stocks.”
Wise also notes that the manager has shifted his portfolio into different sectors than the ones they were buying five years ago, showing the manager is adapting to his environment.
The only problem he raises is the issue of fund size. The fund has grown very rapidly to £1bn, and Wise says that investors need to keep an eye on this.
At the moment the manager is able to keep 25 per cent of his portfolio in small caps, he says, but if it gets much bigger this will no longer be the case.
The fund has ongoing charges of 1.15 per cent.
Baillie Gifford Global Discovery
Another five FE-crowned fund being considered by one of our readers is the £134m Baillie Gifford Global Discovery fund, managed by FE Alpha Manager Douglas Brodie.
This is a global small cap fund launched in May 2011 which has done extremely well in its life so far.
Our data shows it has made 58.74 per cent while the MSCI World Small Cap index has made just 32.35 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund is heavily into technology, with 35.9 per cent in the sector. Ocado is the fund’s biggest position at 3.6 per cent while the fund also holds UK stock IP Group, US electric car maker Tesla Motors, and ASOS.
Like biotech, this is an area some managers have been warning could be over-heating, including some specialist tech managers.
In fact, both Ocado and ASOS have seen serious share price declines over the past month after reporting mildly disappointing results, underlying the risks in the sector.
It is diversified outside of the sector, however, with 21.3 per cent in consumer discretionary and 18.8 per cent in healthcare.
Ongoing charges on the clean fee share class are 0.84 per cent.
