FE Trustnet readers have enthusiastically added to the active versus passive debate over the course of the past 12 months, a period where many actively managed funds have seen outflows to the benefit of low-cost trackers.
However, while a few passive vehicles made it onto our traditional list of shining a light at some of the funds most popular with our readers, the vast majority show substantial support for active management across a range of asset classes and investment regions.
That is not to say lower charges were not a key criteria for the funds you are looking to buy this year, and interestingly all of the funds mentioned in the story have charges below 1 per cent.
Nor are the majority of you particularly downbeat. Early indications of our latest poll suggest about 70 per cent believe the FTSE 100 will stay above 6,500 points this year despite its current slide, with 25 per cent expecting it to smash through the 7,000 barrier and therefore hit an all-time high by year end.
Here we take an in-depth look at three of the funds most popular with those of you who wrote in, vehicles ranging from giant and broad to the boutique and specific.
Fundsmith
First up is the £3bn Fundsmith Equity fund, managed by Terry Smith. Sitting in the IA Global sector it offers exposure to a wide universe of stocks and has become popular amongst retail investors for core exposure, for understandable reasons.
Since it was launched in November 2010 it has had a strong run, particularly in 2014, having almost doubled an investor’s stake since inception.
Compared to the average fund in the IA Global sector it has significantly outperformed – by almost 60 percentage points – while it has stayed ahead of the MSCI World index by more than 40 percentage points.
Performance of fund, sector and index since November 2010
Source: FE Analytics
Only 15 per cent of funds managed to beat the index over this period with several of those that stayed ahead focused on higher growth – but volatile – areas such as healthcare. But Fundsmith has been the best performing non-healthcare fund over the period since it was launched.
Much of the outperformance came in 2014 at a time when markets were flatter than the previous few years. The fund was top decile last year with returns of 22.71 – just under double the gain of the index.
Ben Willis, head of research at Whitechurch Securities (pictured), says he recommends the fund as a core holding.
“We have held it since it was launched, it is one to buy and forget about. He [Smith] had a brilliant year last year, it is unbelievable really,” Willis said.
“He buys global leading companies or franchises and looks for companies that grind out profits year on year. Not high beta but just leaders in their markets, and he buys and holds them.”
“He had a US bias last year, which obviously helped him. Can he make 22 per cent again this year, who knows? But if you want exposure to global equities then it makes a good bedrock. It won’t be the best in the sector every year but it’s not going to be worst.”
Top holdings include Imperial Tobacco, Microsoft and Domino’s Pizza.
The five crown-rated fund has a clean ongoing charges figure (OCF) of 0.99 per cent.
MFM Slater Growth
Next up is the £166m MFM Slater Growth fund, managed by FE Alpha Manager Mark Slater. The fund sits in the IA UK All Companies sector.
While the UK equity market was broadly flat over the course of 2014, Slater managed to return 17.57 per cent to investors and was only pipped to the top spot in the sector by one fund, his £35m MFM Slater Recovery fund.
Over three years the fund is top quartile. It has returned 72.15 per cent compared to a sector average of 43.78 per cent and a gain in the FTSE All Share of 33.4 per cent.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
Over five years it has returned 202.15 per cent, the best performance in the sector over this period.
Willis says Slater tends to have a small and mid-cap bias in his funds, particularly in this one.
“This would have helped him to outperform in 2012 and 2013 when mid-caps had a great run,” he said.
“We didn’t buy it a year ago because of the strong performance over the previous few years from the lower cap stocks. We were thinking that the market was quite mature now but he obviously has shown he can pick some good stocks.”
“It is a fund we might well revisit in the future.”
Slater’s largest holdings include Hutchison China MediTech, Redcentric and Restore – all very uncommon names in the top 10 holdings of the 273 funds in the sector. In fact no other managers hold the stocks, although Slater holds them in his other funds.
The fund has a clean OCF of 0.81 per cent.
Neptune Russia & Greater Russia
Russia has been the standout recent contrarian pick after its index had a shocking 12 months.
Partly due to Russia’s support for Ukrainian separatists, its annexation of the Crimean Peninsula and the subsequent sanctions but also because of the huge fall in the oil price in the latter half of the year, investors in the region are likely to have been hard hit.
Not least was FE Trustnet editor Joshua Ausden who bought Robin Geffen’s £185m Neptune Russia & Greater Russia fund.
Hit by further slides in the rouble and the oil price, Ausden saw his punt that the Russian market couldn’t get any cheaper falter after losing 26 per cent in one week, but he has bought the dip alongside several FE Trustnet readers.
The fund is down 44.14 per cent over one year, a worse fall than its benchmark index.
Performance of fund and index over 1yr
Source: FE Analytics
Willis says investors in the fund need to have a strong stomach for the likely volatility they will experience.
“It has become a bit of a binary play. We bought into Russia – in a different fund – and it was too early but we are maintaining our position and we think it will still recover,” he said.
“Generally, it is a risky play but this fund is also more of a bet on the overall recovery of Russian economy as well as its continued growth in the wealth of the middle class.”
“You have to have that in mind and have right risk profile, things could still become cheaper. It is more of a long-term hold and not something to make a quick bet on.”