In light of this, FE Trustnet spoke to Informed Choices’ Martin Bamford on how to make the most out of the market, from well-loved sectors to asset classes that might deter even the most bullish investor.
Fidelity Index UK
First up is an index tracking fund – the £1.5bn Fidelity Index UK fund.
Bamford said: “It tracks the performance of the FTSE All Share, which is a better proxy for UK stock market performance than the often quoted FTSE 100.”
Given the fund tracks the All Share, it has more than a quarter of assets in financials, with 14.7 per cent in consumer goods, 12.3 per cent in oil & gas, 11.6 per cent in consumer services and 10.3 per cent in industrials.
“It has very low ongoing charges of 0.07 per cent, which makes this fund a very low cost way of investing in UK companies,” Bamford added.
In May last year, Fidelity cut its charges across all seven of its tracker funds, making the company the cheapest tracker fund provider for UK investors.
But cheap pricing doesn’t mean underperformance, either. Over the last year, Fidelity Index UK has pipped its sector to the post in terms of performance, achieving top quartile returns of 8.1 per cent after active funds struggled against the market.
Performance of fund vs sector and index over 7yrs
Source: FE Analytics
Legal & General UK Property
Commercial property funds have proven favourable among investors recently, as they usually offer a tempting balance of income and growth.
“As the UK economy continues to recover, the commercial property sector offers decent prospects for total returns, made up of capital growth and rental income,” Bamford said. “This fund is diversified across 100 different property holdings in the UK.”
As shown in the graph below, L&G UK Property is giving investors a far smoother ride than the sector average. With a FE risk score of just 22 – the FTSE 100 scores 100 – the fund lends itself to the more cautious investor.
This means that the fund boasts top quartile annualised volatility of 4.01 per cent, which is less than half that of its sector. Similarly, it has nearly half of the maximum drawdown of its sector average, at a top quartile 19.7 per cent.
Bamford added: “It has a historic yield of 4.3 per cent, which is far stronger than the yield offered on cash or bonds.”
Marlborough Global Bond
Many investors have been apprehensive about bonds, following a 30-year bull run in the asset class. What they find even more daunting, Bamford explains, is the inevitable rise in interest rates which will depress the capital value of bonds.
“This fund offers investors a way to diversify the bond allocations of their portfolios, with global bonds hopefully less sensitive to rising interest rates in the UK,” he said.
Over three years, the £74.3m fund has delivered top quartile returns. Co-managed by experienced duo Geoff Hitchin and Nicholas Cooling, the aim is to provide medium to long-term income and capital growth.
Bamford said: “It has delivered a total return of nearly 39 per cent over the past five years and has ongoing charges of 0.46 per cent, with a distribution yield of 4.34 per cent.”
Some 36.5 per cent of Marlborough Global Bond’s portfolio is in the UK, 20 per cent is in Europe and 15.6 per cent is in the US. It also holds 14.5 per cent of its assets in the global money market.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Baillie Gifford Japanese
Following a 30-year bear market, Japan has a reputation for being a notoriously difficult investment opportunity.
“Japan is the perpetually underperforming economy, which investors often ignore as it seems to be trapped in a constant state of deflation and low growth,” Bamford explained.
However, many investors believe that this is set to change due years of political turmoil seemingly coming to an end with the election of Shinzo Abe and the implementation of his ambitious stimulus package.
Bamford said: “There is a real political determination to boost the prospects for Japan and this fund has performed surprisingly well, at close to 30 per cent over the past year. It has ongoing charges of 0.68 per cent and is managed by an experienced team.”
As shown in the graph below, Baillie Gifford Japanese has hugely outperformed both its sector and benchmark in recent years.
Over a three-year period, the fund, which is in FE’s Research Select 100 list, has achieved total returns of 67.19 per cent, which is 24.23 per cent higher than its sector and 24.7 per cent higher than its index.
Performance of fund vs sector and benchmark over 7yrs
Source: FE Analytics
Rathbone Income
This five FE Crown-rated fund aims to achieve high levels of income and has a current yield of 3.4 per cent.
“This is a great fund for investors prepared to take the long view,” Bamford said. “Manager Carl Stick consistently applies his value strategy selecting firms based on valuation discrepancies, the probability of earnings surprises, fundamental analysis and price action.”
“It has delivered a return of 88 per cent over the past five years and has ongoing charges of 0.80 per cent.”
Stick took the management of the fund in January 2000 and has returned 278.03 per cent since – almost double the gain of his average peer and over three times more than the FTSE All Share.
He generally prefers companies that seem out of favour, shying away from companies which are gaining momentum. As such, Stick invests in companies for the long-term, so therefore has a low level of stock turnover.
Performance of fund vs sector and benchmark over 7yrs
Source: FE Analytics