New Best Funds List revealed: Bestinvest highlights the funds favoured by its expert investment research team

With the end of the tax-year fast approaching, the coming weeks are typically the peak season for investors choosing investments in their ISAs and pensions. With a bewildering number of options available on online investment platforms like Bestinvest, it can be easy for Do-It-Yourself investors to suffer a bout of analysis paralysis as they struggle to make the right choices.

Deciding between the thousands of funds, investment trusts and Exchange Traded Funds (ETFs) on offer can even seem overwhelming, particularly for those that don’t have the time or specialist knowledge to truly understand the finer details of a particular fund. This is why Bestinvest, the online investment platform and coaching service, has unveiled the latest edition of its Best Funds List to help narrow the field and offer investors some ideas to consider across a wide range of markets and sectors.

Tapping into the expertise of the more than 300 investment management professionals at Evelyn Partners – one of the UK’s leading wealth managers with £53 billion assets under management (as at December 31, 2022) and the parent company behind Bestinvest – this list is not only our take on the ‘best funds’ available but also represents the core panel within the group’s managed client portfolios.

Before we dive into the detail, it’s important to note that the investments on the Best Funds List have been chosen with a clear set of principles in mind. On page 4 of the report is our ‘10 commandments’ (listed below*) guide on the qualities that our investment teams seek out when choosing funds. Considerations that positively affect their decision can include managers that invest their own money in their funds, those that take a high conviction approach and are prepared to stray from the benchmark, as well as funds that are prepared to limit their size and stop marketing if it balloons to a level when it becomes harder to successfully manage.

Drilling down into our latest batch of ‘Best Funds’, our list of 127 investments includes 30 listed investment trusts, 10 exchange-traded funds and 2 exchange traded commodities. This sets the Best Funds List apart from some other platform ‘best buy’ lists that tend to only include open-ended funds. We think that ignoring investment companies and Exchange Traded Funds puts investors at a disadvantage as Investment companies can be a particularly good option for accessing alternative asset classes such as property or infrastructure, while ETFs offer low-cost options.  

In fact, our specialists have given fee-conscious investors quite a selection to choose from with the list including 10 index tracker funds, which together with the ETFs and Exchange Traded Commodities (ETCs) highlights 22 low-cost 'passive’ options that do not rely on the judgment of a fund manager.

The list includes 105 best-of-breed actively managed funds and investment trusts, where a fund manager is tasked with seeking to identify market beating returns. These represent a tiny proportion of the overall universe of funds available, reflecting Bestinvest’s view that investors need to be super selective when choosing actively managed funds as many fail to deliver over the longer term. For those who want to make sure their investments do not clash with their values, there are 28 investments across all the different types of fund with sustainable, responsible or environmental, social impact and governance strategies.  

Jason Hollands, Managing Director of Bestinvest, said: “Dedicated DIY investors often relish the challenge of researching and selecting funds and trusts for their portfolios, but it can also be a hugely daunting task, particularly when you consider the effects of global challenges such as high inflation, rising interest rates and the war in Ukraine on the markets.

“That’s why our Best Funds List offers DIY investors a snapshot in time of the best funds to invest in across each of the main sectors, helping to narrow down their choices to those we have researched in detail and where we’ve grilled the managers in person to gain a deep understanding of what makes them tick. When you consider each sector, whether it’s North America, UK smaller companies funds or emerging markets, each will typically have a dedicated team of around six of our investment managers involved in researching and monitoring the investments available – that means a huge amount of time and expertise is dedicated to finding the right funds to feature in the Best Funds List.

“Our investment specialists not only meet the fund managers and dig behind the numbers to fully understand the approach adopted, but also analyse the fund size, liquidity constraints and risk management process. Remember, basing an investment decision on past performance alone will not necessarily drive your investments forward, which is why careful analysis of the funds included on this list is so necessary.

“With 127 investment options on the Best Funds List across a wide range of sectors, investors will still need to decide what works for their own portfolio, time horizon, goals and risk profile – but we hope this acts as a helpful starting point for those looking to freshen up their portfolios in the run up to the end of the financial year.

“Taking full advantage of tax allowances and reliefs ahead of the tax year end at midnight on April 5 is especially important following the Government’s decision to freeze most personal tax allowances until 2028 and slash the threshold at which the highest 45% income tax band kicks in to £125,140 from £150,000. There is also the drastic reduction in the annual Capital Gains Tax (CGT) exemption to consider along with the cut in the annual tax-free dividend allowance.

“With far more people set to be dragged into higher tax bands as a result of the changes, nurturing and building on existing longer-term, tax-efficient savings is more important than ever.”

While the Best Funds List is published twice a year, it’s important to note it is never static – with investments added or removed throughout the year. This can happen if a manager changes and we feel the replacement is unproven, with any changes to our list reflected instantly on the Bestinvest website. We also highlight which funds have been added or removed over the past six months to ensure that List devotees are fully up to speed. Details of the five newcomers and the seven dropouts can be found on Page 3.

Picking and monitoring funds is not everyone’s idea of fun and Bestinvest recognises that. So, for those who don’t have the time or inclination to choose their own funds, Bestinvest has 19 Ready-made Portfolios on offer. These are fully managed options, for those wanting to delegate decision making. The options include five low-cost Smart portfolios launched in 2022 that invest through passive funds and ETFs, catering to different risk profiles. With ongoing costs starting at just 0.32% and a Bestinvest platform fee of just 0.2% pa, they are very competitive versus ‘robo-advisers’. Customers can also select one of 10 Expert portfolios, which invest through best-in-class active managers and includes Sustainable options, and four new Multi-Asset funds that invest directly in individual shares and bonds rather than funds.

As a reminder, Bestinvest underwent a radical transformation in 2022, relaunching in May as a first-of-its-kind hybrid service that combines online investment with reduced fees, free financial coaching from qualified investment planners, affordable personal advice packages, low-cost Ready-made Portfolios and sophisticated digital goal-planning tools alongside an extensive choice of funds and securities for self-directed investors.  

Bestinvest has continued to enhance its offering in 2023, rolling out its new mobile app in January - available on the Apple App Store for iOS and the Google Play Store for Android - to help customers manage their investments on the go and unveiling attractive offers including a cashback offer*,  rewarding new and existing customers with up to £1,000 in cashback when they transfer an account in full to Bestinvest, and a Refer a Friend promotion. (Terms and conditions apply to each offer)

* Bestinvest’s 10 Commandments

1. Managers who don’t hug the benchmark

We stay away from funds that try to only replicate the index they’re measured against. We want managers that have conviction in their own ideas and don’t feel compelled to invest in companies or industries they find less attractive, just because they make up a large part of the benchmark. No peer pressure here!

2. Tasting their own cooking

Ever heard the phrase ‘never trust a thin chef’? Well, the idea behind this phrase works with investing too. We think it’s really important that managers invest their own money into their own fund and show that they have the same interests as you, their investors. Some of our favourite managers own their own fund management companies too.

3. Crystal clear objectives

We like fund managers who have clear goals and a consistently good way of getting there. It means they know what they’re doing. Only when managers define how they want their success to be measured can we accurately decide what we think of them managing your money.

4. Eyes on the prize

Do they have the endgame in sight? We want fund managers who focus on making you wealthier, not just simply beating a market. After all, if the market drops 26% and your fund drops 25%, technically the manager might have beaten the market, but they’ve also lost you a quarter of your money!

5. Concern in the right places

Managers should be more concerned about the fundamentals behind the business they are investing in, and less concerned with any price risk. Financially sound, well-run businesses might seem expensive, but they can often survive, and even thrive, during economic downturns whereas lower quality businesses may not, no matter how cheap their share prices are.

6. Long-term horizons

Like a sunset from the Spanish Pyrenees to the French Alps (the longest photographed sightline in the world at 443 km**), we want our managers to have long horizons. Short-term share price movements are notoriously difficult to predict, but over the long term they do tend to match company profits. We think managers who choose their investments based on long-term fundamentals and actually prefer to hold an investment for the long term should reap the benefits for you. Patience is a virtue.

7. Concentrated portfolios

Can their portfolios strike the right balance? Outperforming becomes more and more difficult as the number of stock holdings increases. We look for managers who can find a nice balance between diversification (spreading money across different sectors) and investing with conviction in fewer positions. It’s a fine line but it needs to be right.

8. Going green

The sustainable returns we look for, and that are important to more and more of you, our investors, are hard to achieve if businesses don’t engage with sustainability more widely. We’re long-term investors. So, we seek out managers that appreciate and understand that Environmental, Social and Governance (ESG) factors have a meaningful impact on your returns through time.

9. Limiting fund size

Are managers willing to limit the size of their funds? Large pools of assets make things tricky for fund managers – they either have to take large positions in their best ideas, making them hard to sell if things go wrong, or invest in larger numbers of companies, some of which will inevitably be less attractive. All things considered, we want managers who will restrict the size of their funds to a more manageable level so they can focus on their best investment ideas for your money.

10. Longevity of manager

Will the manager be there for the long haul? We believe a strong, stable and long-term management team with a track record of success is vital to the ongoing success of any managed investment.

Investments go down as well as up and investors may not get back the amount originally invested. Past performance is not indicative of future performance. Prevailing tax rates and reliefs depend on individual circumstances and are subject to change. This article is solely for information purposes and is not intended to be and should not be construed as investment advice. Whilst considerable care has been taken to ensure the information contained within this commentary is accurate and up to date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.