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There is something more useful than a recommendation from a trusted source: receiving the same suggestion from multiple people. Take a movie recommendation, for example: You may notice when you read a great review of a movie, but you’re even more likely to go to the theater if you see several.
And in the world of investing, recommendations are especially valuable. This is because investors have several thousand funds to choose from, and narrowing that number down to just a few to hold in a portfolio is no easy task.
That’s why Wealth & Personal Finance has teamed up with consultancy The Lang Cat to compile a list of the funds most recommended by the UK’s six main investment platforms.
All six have their own list of recommended funds, ranging from 49 to 93 each. Lang Cat has compared these lists to find the funds that come up again and again.
There is no guarantee that these funds will be good choices for your portfolio. At the end of the day, the lists of investment platforms are not intended as personal recommendations, but rather as ideas to take into account. But, since these funds are so popular, it may be worth checking them out and considering whether they fit your own investment strategy.
Hot Tips: We’ve teamed up with consultancy The Lang Cat to compile a list of the funds most recommended by the UK’s top six investment platforms.
What are the recommended funds?
Investment platforms understand that narrowing thousands of funds down to just a few can be daunting. It can be difficult for investors to know where to start. Therefore, to help make life easier for clients, most publish a list of their favorite funds that they will be happy to recommend.
AJ Bell’s list of 76 is called Favorite Backgrounds; Barclays Smart Investor has 50 on its Fund List; Bestinvest has 93 on its list of best funds; Fidelity is 49 in the Select 50; Hargreaves Lansdown 72 on his wealth short list; and Interactive Investor 62 in its Super 60.
The number of recommendations on each list tends to fluctuate over time.
Each platform has its own methodology for choosing what is on its list of favorite funds. Most will consider factors including how the fund performs compared to its rivals, how much it costs and how risky its strategy is compared to the returns it hopes to achieve.
There is no guarantee that the platforms will select the winners.
What is certain is that any fund on these lists would have had to go through a lot of due diligence, both to get on and remain on the list. Lists of recommended funds have proven controversial in the past. The city’s regulator, the Financial Conduct Authority, has had them under scrutiny.
And its reputation was tarnished by Hargreaves Lansdown keeping the failed Woodford Equity Income Fund on its best buy list despite growing industry concerns about it.
But, as a result, no investment platform wants to fall short by recommending something that doesn’t work. Everyone will have solid strategies to monitor their listings and make sure they deliver on what they promised investors.
Interestingly, The Lang Cat’s research reveals that there is surprisingly little overlap between the lists. There are more than 300 funds appearing in the six lists. Of them, none are on all six lists, only one is on five, five appear on four lists and only 15 funds are on three lists.
Mike Barrett, consulting director at The Lang Cat, says lists can be useful, but investors need to make sure the funds meet their own needs and risk appetite.
“Lists of the best ideas can help cut through some of the noise, but, as the lack of correlation between the lists of the six largest platforms shows, even experts disagree on which funds are best,” he says.
The most recommended fund
Blackrock Continental European Income Fund is the only investment mentioned in five of the six lists. An investment of £1,000 in this fund would have grown to £1,520 over the last five years. This is slightly above the sector average of £1,479.
The fund invests in large companies based across Europe, such as Danish pharmaceutical firm Novo Nordisk and French owner of Louis Vuitton and Moët, LVHM.
Its goal is to provide investors with dividend income and growth from rising stock prices. Hargreaves Lansdown notes that while the fund managers invest primarily in larger, more established European companies, they also have the flexibility to invest in higher risk small and medium-sized companies.
Interactive Investor is also a fan. He says the fund benefits from an experienced management duo of Andreas Zoellinger and Brian Hall and a well-resourced team.
He also likes its “style agnostic” approach: it doesn’t just focus on a single strategy, such as looking for companies that look cheap or are currently doing poorly. “The manager’s approach leads to a more stable profitability profile and superior performance during periods of market weakness.” The interactive investor adds that the fund produces good returns for the amount of risk it takes compared to its peers.
Funds with four recommendations
Four different investment platforms recommend five funds. Fidelity Global Dividend is one of them. An investment of £1,000 five years ago would now be worth £1,503, which is slightly above the average return on similar global equity funds of £1,481.
The fund invests in large companies around the world, such as consumer goods giant Unilever, information provider RELX and German stock exchange Deutsche Börse.
Interactive Investor says the fund typically performs well during periods of market weakness, while also holding its own in rising markets. It has generated revenue in a range of 3.1 and 3.3 percent over the past three years.
Also featured on four lists is the Fidelity Index World Fund, which aims to track the performance of the MSCI World; In other words, an index of the largest companies around the world.
An investment of £1,000 five years ago would be worth £1,718 today. This compares to the global fund average of £1,528. Its main holdings are today’s largest companies: Microsoft, Apple, Nvidia and Amazon.
There are several similar global index funds available to investors. One of the reasons four vendors may have chosen this product is the price. With fees as low as 0.12 percent, it’s a very low-cost way to get access to more than 1,600 of the world’s largest companies.
The iShares Japan Equity Index Fund closely tracks the performance of the FTSE Japan index, an index of Japan’s largest companies.
It has turned a £1,000 investment into £1,390 in five years, compared to an average of £1,354 for all Japanese funds available to UK investors.
Top holdings include automakers Toyota and Mitsubishi and electronics firm Sony.
It is a passive fund, meaning the holdings are chosen to track the index rather than being hand-selected by a fund manager. This means it has a very low cost, with an ongoing cost of just 0.08 percent.
Bestinvest is one of the platforms that recommends it. He says the fund “has consistently demonstrated strong long-term characteristics” and “its fee structure is extremely attractive – it’s ultra-low cost.”
Liontrust UK Growth Fund invests almost exclusively in UK companies. Its major holdings include Shell, AstraZeneca, BP, Unilever and GSK. It has turned a £1,000 investment into £1,269 in five years, compared to an average of £1,206 for UK funds.
Hargreaves Lansdown is among four platforms that recommend the fund on their list. He says the fund’s focus is finding the few companies with an advantage over the competition that allows them to earn above-average profits over the long term.
He adds: ‘Managers believe that the most difficult economic advantages to copy are intellectual property, such as patents and trademarks, strong distribution channels and significant repeat business. That’s why a company must have at least one of these attributes before being considered for the fund.’
Stewart Investors Asia Pacific Leaders Sustainability Fund invests in shares of large and medium-sized listed companies based in the Asia-Pacific region, excluding Japan.
Around 40 per cent of the portfolio is invested in Indian companies, followed by 12 per cent in Taiwanese companies.
Top holdings include automobile company Mahindra & Mahindra, Indian bank HDFC and electronics maker Samsung.
The fund has turned £1,000 into £1,330 in five years, compared to its benchmark of other so-called specialist funds of £1,293.
Fidelity is among the platforms that like this fund. Stewart Investors is one of the pioneers in sustainable investing, which is why Fidelity favors it.
The platform says: ‘The manager has a long tradition of investing in the region and an experienced team of experts. In Stewart’s view, a leading company is one that has a resilient balance sheet, good franchises, a strong culture and a focus on sustainability.
“The manager carries out detailed research, has specialists on the ground and is clear about what an ideal investment looks like.”
But don’t just buy the lot!
Recommended funds should be treated as ideas to consider: inspiration rather than recipes. If you bought the lot, you’d probably end up with a very skewed portfolio.
Most experts tend to agree that the key to a good portfolio is balance: a good mix of geographies and sectors. That way, you won’t be overexposed if a region or sector takes a hard hit.
If you buy funds solely on recommendations, you may end up with three Japanese funds and no exposure to the United States, for example.
Also, remember that these recommendations change periodically, so you will have to pay attention.
For example, The Lang Cat notes that about 70 percent of the funds on Fidelity’s list have changed in the last two years.
When a platform removes a recommendation, you may need to consider whether it still fits your strategy or if there are reasons to remove it from your portfolio.
However, keep in mind that buying and selling regularly tends to incur fees, which detracts from your investment performance.
When you buy, you should expect to maintain the price over the long term.
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