The Telegraph unveils the funds most frequently tipped by the investment experts – with some alarming results
The Telegraph today discloses what could be regarded as the most definitive list of fund tips ever compiled for UK investors.
Platforum, an independent consultancy, has meticulously scoured the “buy lists” of seven major brokers for Your Money and identified which funds are named most frequently.
Alarmingly, the research shows the most tipped fund is also one of the worst performers, out of more than 1,500, over three years.
It highlights the dangers of such recommendations and serves as a reminder that brokers’ fund tips should be viewed with a dose of healthy scepticism.
One issue, highlighted before by The Telegraph, is that fund shops are allowed to accept marketing payments from fund management companies, typically made for advertising on brokers’ websites.
While there is no evidence these payments influence the make-up of the buy lists, it is a potentially murky area that could compromise impartiality.
Holly Mackay, managing director of Platforum, said best-buy fund lists should be viewed only as a helpful starting point.
“Individual buy lists are useful guides for less-confident investors, although some detractors cite commercial bias or other flaws in the selection process,” she said. “By looking across all seven brokers with buy lists, this irons out any individual biases and presents an interesting picture of the consensus view from some of the UK’s best fund selectors.”
Platforum analysed the “buy lists” of seven fund shops, which typically plug about 100 funds, across 10 investment sectors.
Despite there being more than 1,500 funds available to UK savers, just five are tipped by all the brokers – Hargreaves Lansdown, Fidelity Personal Investor, Bestinvest, Charles Stanley Direct, the Share Centre, Chelsea Financial Services and Close Brothers.
The research found that 16 funds appeared on at least five of the lists, while 46 funds cropped up four times.
Of the five funds that are tipped on each list, data from FE Trustnet shows that three of the funds have excellent long-term track records.
The pick of the bunch is Axa Framlington UK Select Opportunities, run by respected fund manager Nigel Thomas. The fund, which adopts a buy-and-hold approach, buying the best companies Britain has to offer, has turned £10,000 into £24,300 over five years, beating the average UK fund manager, who has made £20,070.
Both the M&G Optimal Income, which buys bonds, and First State Asia Pacific Leaders fund, which backs shares in fast-growing emerging market nations, such as China, have both beaten their peers and the wider market over five years.
But in the case of Artemis Income and BlackRock Gold and General, both funds have disappointed.
At first glance, Artemis Income, having notched up a 102pc return over five years, turning £10,000 into £20,020, looks like it has delivered some good numbers. But on closer inspection the fund has failed to beat the average UK dividend fund over this time period, which has returned 105pc.
The experts point out the fund has a solid 10-year track record, and, indeed, it has, returning 146pc, beating the average fund return of 118c. But if performance fails to improve, this will soon drag down the 10-year figure, which will test brokers’ resolve, given that the fund has been heavily plugged for several years.
By far the worst fund in terms of performance that is on every buy list is the BlackRock gold fund.
The fund, which buys both bullion and shares in gold mining companies, has lost investors 23pc over five years, and worse still those that bought in three years ago would be sitting on a paper loss of 55pc.
It has been a tough couple of years for gold investors. But it is concerning that brokers still view the fund as a solid buy when the asset class it invests in – gold – has been and remains so out of favour.
This is why it is prudent to use these lists as part of your research rather than being the only source.
Past performance does not mean future returns will be repeated, but when a fund manager has a consistent track record of beating peers and the market over long time periods of at least five years, it does indicate that the fund manager possesses a superior knack of picking winners over others.
Further down the list is the best-performing fund, Marlborough Special Situations. The fund manager, Giles Hargreave, mainly buys small-sized UK businesses. Over five years the fund has turned £10,000 into £31,600.
Most of the other 10 funds out of the 16 are strong performers in their sectors.
If investors created their own multi-asset fund five years ago and bought all 16 of the funds, as well as having a pretty well diversified portfolio, the returns would have beaten the average global tracker fund. The average return of the best-buy fund list is 92pc, while the MSCI global index has returned 83pc.
But some of the best stock market funds over the past five years have been ignored. Each of the seven buy lists favour well-known brands. Boutique fund firms and investments trusts, which spend very little, if anything, on marketing are apparently shunned.
Funds such as the Unicorn UK income, up 259pc over five years, and Finsbury Growth & Income investment trust, which has returned 196pc, are rarely tipped despite being strong long-term performers.
Should you sell your gold funds? Analysis here
Where to go if you want to keep investment fees at a minimum
Pay the minimum to the fund managers
The aim of every investor should be to cut costs to the absolute minimum while seeking fund managers who are most likely to outperform the market.
Just as in supermarkets on the high street, the prices at fund shops differ depending on which fund you want to buy, so it is worth setting some time aside to work out who will give you the best deal.
As a rule of thumb the biggest fund brokers sell funds at a cheaper price than the smaller players in the market, taking advantage of their scale to get a “special” discounted price from the fund management company, such as Invesco Perpetual or Schroders.
Hargreaves Lansdown, the UK’s biggest broker, has a separate buy list for 27 funds where it has managed to negotiate cheaper prices. The firm argues that investors with a portfolio of £30,000 will be better off to the tune of £1,000 after 10 years if they invest in a mixture of the 27 funds that benefit from the special deal.
Applying the same approach to the top 16 funds on Platforum’s round-up of tips lists, we find that Hargreaves is still cheapest, at least when it comes to these underlying fund costs:
• Hargreaves: 0.7pc (£70 a year on a £10,000 Isa)
• Charles Stanley Direct: 0.73pc
• AJ Bell: 0.73pc
• Fidelity Personal Investor: 0.74pc
The cost for investing with the rest of the pack, including Bestinvest, Chelsea Financial Services, Alliance Trust Savings and Interactive Investor, was 0.75pc. T D Direct is bottom of the pile, with the average fund cost at 0.78pc.
As the data shows , the difference in price is extremely marginal and even for an investor with a huge amount, the savings that could be made will amount to only a small figure. An investor with £100,000, for instance, will save just £70 a year choosing Hargreaves over TD Direct. More important is the broker’s own cost.
Pay the minimum for your fund broker
Hargreaves may be the best discounter on fund costs but brokers add on their own fee, and Hargreaves’ charge is far higher than its cheapest rivals. It takes 0.45pc from investors, or £45 a year on a £10,000 Isa, compared with Charles Stanley Direct or Cavendish Online, which both charge 0.25pc, for example. At the other end of the scale, Chelsea Financial Services charges 0.6pc.
To confuse matters, they do not all charge in the same way. Some charge a flat fee and apply a cost each time you trade. It is £75 a year for holding Isas with Alliance Trust Savings and £12.50 to buy or sell funds. Those with bigger holdings are better off with these flat fee brokers.
And there’s a third way. Some charge a percentage fee and a dealing fee. This can be beneficial for those who don’t trade much. A J Bell, for example, charges 0.2pc plus dealing fees that start at £4.95.
Never buy direct
Investors who put money directly into investment funds, rather than through a broker, are not given price cuts and pay significantly more. The typical investor who holds money with a fund manager will pay 1.5pc a year for each fund held. In contrast, those who choose to use a broker will pay around 1pc to 1.3pc, depending on the fund shop and the fund.
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