This is unsurprising, as it can be time-consuming to trawl through various platforms and compare numerous performance tables, factsheets, ratings and ratios.
This leads many people to stick with well-known favourites and household names which they know to be reliable and good performers.
However, this leaves many smaller funds and managers off the radar for the majority of retail investors.
Fidelity’s Nick Peters believes that some of the top funds to invest in are still unknown to a lot of investors, which means many people are not making their cash work as hard as it could.
“Many self-directed investors are aware of the industry’s biggest names, but I think some of the best active managers are less well known and don’t often make the headlines,” he said.
“Some of the most skilled managers remain relatively unknown and looking for true talent requires more than just an awareness of today’s ‘stars’.”
With some of the industry’s best-kept secrets kept under wraps, Peters, who runs the Fidelity Undiscovered Talent fund, believes that seeking a successful, relatively unknown fund requires three main areas of research.
Firstly, he believes that it’s vital to understand the team behind the manager as well as the manager themselves, as they are the fundamental to the manager’s success.
“When researching a fund, it’s vital that we understand the resources available to a manager, and the depth of experience of the team behind them,” he explained. “Size of the team is not what to look at here but the interaction between the team and manager along with the experience of everyone involved in running the fund.”
Secondly, Peters says that, while track records are useful, they don’t by any means demonstrate how capable the fund manager is.
He said: “Managers can outperform and underperform for a number of different reasons, and a particular period may not be representative of their performance over the long term. We use individual track records not as a guide to future performance but as part of the evidence of how a manager has behaved in different market environments.”
As opposed to focusing solely on track records for consistency, Peters also thinks it is wise to check whether a manager’s individual process has remained similar over time.
He says that, if a manager has reacted consistently and their approach remains reasonably unchanged through different market climates, it is more likely that the fund will continue to perform similarly.
“Look through a fund’s history to see how it has responded to bull markets as well as bear markets, and in the context of different market events,” he added.
Using their investment expertise, Peters and F&C co-head of multi-manager Gary Potter highlight three hidden gems that they believe to be stand-out investment opportunities.
Ardevora Global Equity
This five FE Crown-rated fund is only £258m in size, yet certainly packs a punch in terms of performance.
Since the fund’s launch in February 2011, it has outperformed its peers on average by 34.93 percentage points, boasting total returns of 73.27 per cent.
Performance of fund vs benchmark and sector since launch
Source: FE Analytics
Potter said: “Jeremy Lang and his team run a really good global equity fund. It would come under the category of investment boutique, and they have an understanding of the fact that, the more assets you take on, the harder it is to perform. In other words, the bigger the boat, the harder it is to turn around.”
Co-managed by Ben Fitchew, Gianluca Monaco and William Pattisson, the long/short fund focuses on achieving long-term capital by finding stocks that haven’t yet been picked up by the market or that they believe the market is wrong about.
The team do this by looking for signs of panic, over-confidence or blinkering in investors before they buy anything. They also steer clear of management teams who are prone to excessive risk-taking or over self-confidence in the way they play the markets.
The fund is mostly overweight in in mega-caps, but has also allocated 39 per cent of the fund to large-caps and 17 per cent to mid-caps.
Ardevora Global Equity has an ongoing charges figure (OCF) of 1.69 per cent.
Vulcan Value Equity
Founded just two years ago, this newly-fledged fund is producing higher total returns than its peers at 37.43 per cent.
Performance of fund vs benchmark and sector since launch
Source: FE Analytics
“Established in 2007, the Vulcan Value fund looks for value opportunities in US equities,” Peters explained.
“The company was founded by C.T Fitzpatrick to manage his own personal capital but over the last few years, Vulcan’s funds have been opened up to outside investors, giving them access to Fitzpatrick’s emphatic value stance and solid investment process.”
Unlike the Ardevora fund, Vulcan is a long-only equity asset management company, which was initially founded in 2007.
The Value Equity fund has a high-conviction portfolio of between 20 and 35 stocks, led by Oracle Corporation, Discovery Communications and Visa.
While the managers have the freedom to buy equities globally, they generally retain a very large holding in the US – currently, they hold 92.10 percent in the Americas, with the remaining 7.9 per cent in the money market.
“Fitzpatrick and his team are certainly value investors as they focus on margin of safety which acts as a sort of ‘insurance’ if something goes wrong with the investment or as a return boost when the stock price reaches its fair value,” Peters added.
“The fund enjoyed a strong performance in 2014 and we believe Fitzpatrick’s clear and consistent investment process will deliver strong outcomes for investors.”
Vulcan Value Equity has an annual management charge of 1.50 per cent.
Majedie UK Income
“One of the income portfolios we like which I don’t think many people have really heard of, even nowadays, is Majedie Income run by Chis Reid,” Potter said.
“Majedie have an outstanding UK equities team and they run a whole range of good-performing products and they have a consistent delivery.”
Launched in 2011, the five FE Crown-rated fund is run by FE Alpha Manager Reid and appear on the FE Research Select 100 list.
The £878m fund has achieved total returns of 104.75 per cent, which is more than double that of the FTSE All Share and 45.06 percentage points more than its peers.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The fund rotates in and out of stocks regularly to take advantage of as many investment opportunities as possible, although its current top three holdings are Direct Line Insurance Group, Pearson and Tate & Lyle.
The FE Research Team said: “It is refreshing to see Majedie has a strong focus on preserving its ability to outperform the market and aligning its staff’s interests with investors’.
“This is done in two ways: firstly each fund is set a capacity limit beyond which it will close to new investments, to preserve investment flexibility; and secondly the company is almost entirely employee-owned, which should help it retain key members of staff such as fund managers.”
“One concern we have is that the fund’s outstanding track record, along with overall demand for equity income, has led to significant inflows recently, which could see the capacity limit reached within the next year or two.”
The fund has a clean OCF of 0.78 per cent and yields 3.18 per cent.