Flip funds for better returns, say experts

Professional investors advise on alternative options.

Funds and Investment Trusts July 19, 2018 by Holly Black

If your investments aren’t performing, it could be time to flip your funds. Research by Canaccord Genuity Wealth Management suggests investors may be better off putting their money elsewhere if their holdings are lagging.

Patrick Thomas, investment manager at Canaccord, says: ‘Volatility is returning to stock markets, and most people might say you’re better off staying with the funds you are already invested in at such times. While that’s generally true, if a fund isn’t performing particularly well, you might be better off putting your money elsewhere.’

While a ‘buy and hold’ approach is generally a good one and investors should be prepared to ride out ups and downs if they’re in it for the long haul, Thomas says it’s important to regularly review your holdings and consider if your money could be better invested elsewhere.

Canaccord has compiled a swap list, suggesting alternative options which may perform better. 

First up is Monks investment trust, a top-performing global option run by Charles Plowden at Baillie Gifford. The trust has returned an impressive 138.5 per cent over the past five years compared to an average of 90.1 per cent in the IT global sector. Thomas says it’s a strong holding but looks expensive at a 4 per cent premium to its net asset value (NAV).

He suggests Scottish Mortgage as an alternative, which is also from the Baillie Gifford stable and trading at a lower premium. It may be a slightly riskier option, however, as it invests in unquoted, so-called unicorn companies such as online music streaming service Spotify. It has returned an incredible 235 per cent over the past five years.

Another potential flip is the Fundsmith Emerging Market Equity trust, which invests in strong consumer brands listed in emerging markets. It’s trading at a slight premium despite less-than-stellar performance, likely due to the strong following its manager Terry Smith attracts. The trust has returned 27 per cent over the past three years.

Instead, Thomas suggests investors consider Smith’s flagship Fundsmith Equity fund. The £16 billion behemoth has almost 63 per cent of its assets in US firms, which means returns could be further boosted if the dollar stays strong. It has returned 89 per cent over three years.

Finally, Thomas suggests investors abandon Aberforth Smaller Companies. While many smaller company trusts have enjoyed a prolonged period of strong performance, this one has struggled to keep up. It has returned 24 per cent over the past three years, compared to a sector average of 51 per cent. Thomas says: ‘Funds with more indifferent NAV performance, such as Aberforth Smaller Companies, may be vulnerable to a change in sentiment around smaller company investments.’

He suggests that instead investors look up the market cap spectrum to Finsbury Growth & Income. The trust, run by Nick Train, focuses on larger businesses such as Marmite-maker Unilever and Guinness-brewer Diageo. It has returned 45.6 per cent over the past three years.

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