With interest rates at all-time lows and many expecting inflation to stay above the Bank of England’s target for some time to come, sitting on cash isn’t a particularly attractive prospect at present
especially for "first-time buyers" with a long investment horizon.
Cash ISAs are certainly an option, but anyone willing to take on a little more risk should consider the benefits of using a professional fund manager.
Here are three funds that fit the bill for those who are thinking about dipping their toe in the water for the first time:
AXA Framlington UK Select Opps
"This is my first port of call every time," said Kerry Nelson, managing director of Nexus IFA. "It’s in a market which is familiar, and Nigel Thomas
is one of the most consistent managers around."
"This is a fund that can give investors the confidence to then look further afield – there are a lot of exciting high growth options out there, but you’re not going to get the kind of consistency you get with this fund."
"Thomas doesn’t go crazy, but is still able to outperform in both falling and rising markets, which is what I look for in a fund. More specialist funds don’t tend to achieve this feat."
"It’s perfect for someone who wants to ease their way in and make monthly contributions," she added.
Performance of fund vs index over 10-yrs
Source: FE Analytics
According to FE data, AXA Framlington UK Select Opps has outperformed its FTSE All Share benchmark in nine of the last 10 years. Unlike the vast majority of his peers, Thomas managed to outperform during the 2008 downturn, as well as the QE-fuelled rally of 2009 and 2010.
The fund has returned 154.38 per cent in the last decade, compared with 82.09 per cent from the All Share index.
It has a total expense ratio (TER) of 1.56 per cent and a minimum investment of £1,000. The minimum top-up for the fund is just £100.
Cazenove Multi Manager Diversity
"A good starting point for most investors is the Cazenove Multi Manager Diversity fund," said AWD Chase de Vere’s Patrick Connolly.
"It’s a mixed-asset portfolio with roughly a third in equities, a third in bonds and a third in alternatives like property, commodities, derivatives and other assets."
"It’s a good stepping stone into the world of investment because it has low volatility which means new investors are unlikely to be put off by seeing the value of their capital fall."
The fund was the second-best selling product on the Cofunds platform in May and data from FE Analytics
shows that it has returned 18.43 per cent over the last five years, well above the 5.16 per cent from the average fund in the Mixed Investment 20-60% Shares sector.
It is a fund-of-funds, which means that the managers – Marcus Brookes and Robin McDonald – invest in other collective investment schemes.
One of the biggest advantages of these products is that they provide a higher level of diversification than single-manager funds, which can help to control the level of risk.
The disadvantage is that multi-manager funds, in general, tend to be more expensive, with total expense ratios frequently over 2 per cent.
"With a total expense ratio of just 1.8 per cent, the charges on Cazenove Multi Manager Diversity are highly competitive," added Connolly.
"Investors are getting the benefit of a hands-off approach without the cost."
The £825m portfolio has a high degree of exposure to some of the biggest names in the industry, including Philip Gibbs
, Richard Woolnough and Alastair Mundy. It has a minimum investment of £5,000.
Marlborough Multi Cap Income
"Even though a lot of these first-time buyers will be young, with a long-term investment horizon, I wouldn’t recommend anything too high-risk," said Richard Troue, fund analyst at Hargreaves Lansdown.
"There’s always the risk you could make massive losses instantly if you’re in a high-growth fund, which could put that investor off for good. I know it is boring, but I’d suggest equity income – particularly if the person in question doesn’t have a high conviction about any particular area."
"Something like Marlborough Multi Cap Income is a good option. It has got an attractive yield which it is looking to grow, as well as a good level of growth because it’s invested across the market cap level."
"Some of the bigger names have to hold just defensive stocks, but this one has more flexibility."
FE Alpha Manager Giles Hargreave’s £129m fund, which is currently yielding 4.21 per cent, has returned 1.16 per cent since its launch in June 2011, slightly outperforming its sector average.
It has a TER of 1.55 per cent and a minimum investment and top-up of £1,000.