Artemis Income, Liontrust Special Situations and Rathbone Global Opportunities are some of the funds that investors should consider buying monthly, according to Parmenion’s Meera Hearnden (pictured). 
The senior investment manager agrees that adding money to an ISA over longer periods of time is far more beneficial for the investor than putting in a lump sum at the end of the tax year.
“If you wait that whole year, you’re potentially missing out on a few per cent of returns which when you then compound that over 10 or 20 years could be a really significant amount of money,” she said.
“Another key benefit of regular savings is that when the markets are falling, you’re not panicking and selling like a lot of people do. Actually, you tend to do nothing and your money continues to be drip-fed into the market and you then benefit from the lower prices.”
Based on this rationale and following Adrian Lowcock’s fund picks last week, Hearnden gives FE Trustnet her top five fund picks to invest in all-year round, not just weeks before ISA season.
PFS Somerset Emerging Markets Dividend Growth
First on Hearnden’s list is the PFS Somerset Emerging Markets Dividend Growth fund, which is headed up by FE Alpha Manager Edward Lam.
“If someone’s looking over the long term, as in 10 years plus, and they’re prepared to take a bit of a risk, it’s worth considering areas such as emerging markets,” Hearnden explained.
She particularly likes PFS Somerset Emerging Markets Dividend Growth because it focuses on very high-quality companies that pay dividends.
“If a company is paying dividends, it means it’s cash-rich, it means its balance sheets are strong, so it’s got all the right financials in place. Although it’s a high-risk area, it’s a high-quality fund in my opinion. Something like this could really benefit from monthly contributions,” she continued.
The five FE Crown-rated fund, which is just over £1bn in size, does have some broad portfolio constraints. For instance, only 20 per cent can be weighted in large index companies and minor countries should make up less than 10 per cent of the fund.
Holding an average of 40 stocks at any one time, Lam’s approach is fairly high conviction.
The manager uses a rigorous screening process which involves focusing on traditional valuation metrics and downside risk factors, analysing balance sheets and visiting the regions he invests in regularly.
The fund has achieved total returns of 37.13 per cent since its launch in 2010, outperforming its sector average by 28.12 percentage points and the MSCI Emerging Markets index by 24.86 percentage points.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
PFS Somerset Emerging Markets Dividend Growth has a clean ongoing charges figure (OCF) of 1.33 per cent and yields 2.3 per cent.
Hearnden believes that FE Alpha Manager James Thomson’s Rathbone Global Opportunities fund will dovetail particularly well with an emerging market fund.
“[Thomson] doesn’t invest directly [in emerging markets], but he will invest in companies that have revenues that come from emerging markets,” she explained.
“Although some of the stocks are listed in the US or the UK, for instance, they still benefit from the growth of demand for emerging markets.”
Thomson, who took the fund’s helm in 2003, is looked upon favourably by Hearnden because of his long management tenure and his distinctive investment style.
“He doesn’t just invest in global growth companies – he tends to invest in different buckets, one of which is unrecognised growth potential in companies,” she said.
“He doesn’t always invest in your everyday large-cap stocks, which tend to get the attention: he also looks at some mid and small-caps. So with that in mind, the fund can at times suffer from volatility, especially during big market events such as the financial crisis.”
“But, for someone who’s doing regular savings, that’s exactly the kind of fund you would want to hold in the weak times in markets as well as the good times. If you look at the long-term performance, it’s been phenomenal.”
Over 10 years, the fund has achieved total returns of 210.98 per cent, which is almost double that of its average peer in the IA Global sector.
Performance of fund vs sector over 10yrs
Source: FE Analytics
The fund has also achieved a top-decile alpha rating, which measures the fund’s outperformance of its benchmark, of 3.91 and a top-decile Sharpe ratio, which measures risk-adjusted performance, of 0.5.
Rathbone Global Opportunities has a clean OCF of 0.8 per cent.
Hearnden’s next choice is another global fund, which is run by Michael Lindsell.
“Although I’ve recommended the Rathbone Global Opportunity fund, Lindsell Train is very different. It’s a very concentrated portfolio of 25 to 30 companies. It focuses on big brands, so the Unilevers of this world,” she explained.
The fund’s top 10 holdings also include Pearson at 8.3 per cent, Nintendo at 7 per cent and Diageo at 7 per cent.
“It actually complements the Rathbone fund because it has a large-cap bias and it focuses on big brands and companies. It’s a very consistent process in terms of what [Lindsell] holds and it will experience some ups and downs, but long term the fund generally trends upwards and does well.”
The £911m fund was launched in March 2011 and has already doubled the total returns of its average peer at 87.64 per cent.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
What’s more, the fund has achieved top-decile annualised returns of 21.43 per cent over three years and has a top-decile Sharpe ratio of 1.54.
“Lindsell is good example of a manager who will hold things for as long as 10 years before he decides that he’s had the most value out of it,” Hearnden added.
Lindsell Train Global Equity has a clean OCF of 0.84 per cent.
Next on Hearnden’s list is Liontrust Special Situations, managed by FE Alpha Manager duo Anthony Cross and Julian Fosh.
The £1.5bn fund is highly rated by investment analysts, holding an FE Crown rating of five and an ‘AA’ rating from Square Mile.
“The team has got expertise in the small-cap market, but what’s different about them is that their process focuses on companies with intellectual property,” Hearnden explained.
“Those sorts of companies are more likely to outperform because they’ve got this advantage, whatever the intellectual property may be. Whether it’s technology or whether it’s a particular type of service they offer, it can’t be easily replicated by competitors so generally speaking those companies tend to perform very well.”
While the fund isn’t restricted in terms of market cap or sector, it invests mostly in the mid and small-cap space through a concentrated portfolio of UK companies. Liontrust Special Situations currently has 50 holdings, almost of a quarter of which are in the industrials sector.
The fund also has a 17.72 per cent weighting in services, 15.42 per cent in media, telecom & technology and 10.97 per cent in oil & gas.
Hearnden added: “Because it’s got a small-cap bias it might not be everyone’s cup of tea, but it’s where investors can really add value because they can deliver far superior growth over the long term compared to large companies who have already seen a lot of growth come through.”
Since its launch in November 2005, the fund has made total returns of 232.2 per cent, which is more than double that of its benchmark and peer average in the UK All Companies sector.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Liontrust Special Situations has a clean OCF of 0.87 per cent.
For income and for further diversification, Hearnden has chosen Artemis Income for her final ISA fund pick.
“It’s a very solid fund – it’s had the same manager at the helm for over 10 years,” she said.
“It was originally run by Adrian Frost and Artemis have strengthened the team over time as the fund has grown bigger. It’s a very traditional value-style equity income fund.”
FE Alpha Manager Frost, who took the helm two years after the fund’s launch in 2000, was joined by fellow FE Alpha Manager Adrian Gosden the following year and later by Nick Shenton in July 2014.
The fund has an ‘AA’ Square Mile rating and four FE crowns to its name and, although it invests predominantly in companies listed on the UK stock market, it will invest up to 20 per cent abroad if the suitable opportunities exist.
Currently, Artemis Income has an 87.93 weighting in the UK, 7.69 in Europe excluding the UK, 3.2 per cent in cash and 1.18 per cent in North America.
The fund is outperforming the FTSE All Share index over one, three, five and 10-year periods while sitting in the IA UK Equity Income sector’s third quartile over one and three years and second quartile over five.
Artemis Income has outperformed its benchmark by 18.7 percentage points and its sector average by 22.26 percentage points over 10 years, providing total returns of 136.32 per cent.
Performance of fund vs benchmark and sector over 10 years
Source: FE Analytics
Hearnden added: “There will be periods when the fund tends to be second-quartile in terms of performance, but it’s very much a buy-and-hold sort of fund with some very smart managers at the helm.”
Artemis Income has a clean OCF of 0.79 per cent and yields 3.49 per cent.