The new ‘Best Funds’ list revealed: Bestinvest names the funds that its investment research teams prefer so savers can overcome the paradox of choice

Faced with the vast number of options on investing platforms, it’s easy for investors to become frozen by too much choice. Last week Bestinvest revealed its widely respected list of ‘Dog funds’ - those that have consistently underperformed the market - so that savers could get an idea of what to avoid. This week it’s the turn of the pedigree investments.

There are over 300 investment professionals at Tilney, Smith & Williamson - the parent company behind investing platform Bestinvest - encompassing forensic expertise across the universe of global investments. The Best Funds list replicates the core panel of funds, investment trusts and ETFs that they use within managed portfolios, where these are also available to DIY investors.

The latest ‘Best Funds’ list is out now and includes 25 listed investment trusts and 11 exchange-traded funds, which sets it apart from some other platform ‘best buy’ lists that tend to feature only open-ended funds. The top ideas from our sector specialists, who are the brains behind a team that manages over £55 billion of assets for clients, also include 10 passive index funds.

Together with the ETFs that means there are 21 low-cost index-tracking options for fee-conscious investors. For those who want to make sure their investments do not clash with their values, there are 17 investments across all the different types of fund with environmental, social impact and governance strategies.

Meanwhile those who are prepared to pay a bit more for funds that are actively managed still want to make sure they are getting value for money. Just 98 actively managed funds and investment companies have made the Best Funds List, which is a tiny proportion of the roughly 4,000 open-ended funds and more than 300 investment companies that are available in the UK. This is because the bar is set very high by our ‘10 commandments’ - or the qualities that the investment team look for in actively managed funds.[1]

The criteria include managers who are not constrained by hugging benchmarks, have a clearly defined approach, who personally invest in their own funds and who are willing to limit the size of their funds if this starts to hamper the way it is managed. The list includes funds managed by large, well-known fund management groups, but also selections from small, boutique management groups who aren’t household names.

Jason Hollands, Managing Director at Bestinvest, commented: ‘Choosing funds yourself is one of the joys of do-it-yourself investing, but also one of the challenges. With thousands of funds of all different shapes and sizes on offer in the UK, it is easy for savers – and particularly those starting off on their investment journey – to become overwhelmed by the range of options.

‘Last week we listed 86 of the funds that investors might want to avoid because they are the worst underperformers. This week on a more positive note we reveal the ones that our investment team prefer based on a whole range of criteria, some of which the retail investor might easily fail to consider.

'Many investors put too much emphasis on a few basic metrics like recent past performance, which is a like driving a car solely looking in the rear-view mirror and not the road ahead. The Best Funds list is distilled from extensive research, including meeting the fund managers, digging beneath the bonnet to understand their investment approaches and giving consideration to factors like fund size and liquidity.

‘There’s still some choosing for investors to do, with 119 vehicles on the list across many different sectors, but in the absence of tailored investment advice, it makes an excellent starting point.

‘As the list evolves throughout the year, with funds removed or new ones added, these are updated on the Bestinvest website, so that clients are kept up-to-date. Choosing a fund is not just a case of doing some homework before buying them, once invested it is vital to constantly monitor your portfolio. A change in circumstances, such as the departure of a fund manager or a significant increase in the size of a fund, many require you to reassess whether it is right to stay invested or move to another fund instead.’

For those who don’t want to have to choose their own funds, Bestinvest has just launched a new range of low-cost Smart ready-made portfolios to complement its existing range of Expert funds of funds. The Smart portfolios, designed to suit five different risk profiles, spread investors cash across a diversified selection of passive funds. With low ongoing costs of 0.34 - 0.37% and a reduced Bestinvest platform fee of just 0.2%, they are one of the cheapest investments of their kind on the market and very competitive even versus ‘robo-advisers’.

Please link off to the list, which can be downloaded for free at https://www.bestinvest.co.uk/guides/the-best-funds-list

NOTES FOR EDITORS

[1] The 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.
2. Tasting their own cooking: 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: 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 longterm 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 ideas. 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.