Closely aligned to the Ready-made portfolios offered by some of the direct platforms (which we look at elsewhere) are the lists of recommended funds selected by platforms. These are the funds that the platforms and their in-house experts consider to have a good fund manager, a reliable track record and are likely to do well for their investors over time. Without such guidance, and with over 2,000 funds to choose from, it is easy to be influenced by whichever fund is top of the league tables at the time or is being tipped by commentators, who may receive a commission for doing so.
The star ratings applied to funds by platforms, who variously brand them as ‘Premier’, ‘Calibre’, ‘Best Buy’ or ‘Wealth 150′ lists can therefore offer a more objective approach to selecting funds for your portfolio. If you cross reference the lists to see which funds appear in more than one list you can be reasonably sure of finding a fund that has a better than average reputation – however, research in 2014 by The Platforum, a fund consultancy, found that not a single fund out of nearly 400 listed on the ‘buy’ lists of eight of the biggest brokers appears on every one. Just five funds appeared on seven out of eight lists, and only 16 managed to get onto five lists.
Healthy Degree of Scepticism
Mark Polson, founder of fund consultancy The Lang Cat who has produced a report on Direct Platforms, says of such lists: ‘Investors should treat everything presented with a healthy degree of scepticism and read up before choosing.’ This is particularly the case where platforms have gone down the populist route and included lists of funds which customers ‘look at most often’ or feature a ‘most-bought’ list. It is hard to understand how a serious platform can justify publishing such lists – despite the small print confirming that the list is not a recommendation, any behavioural psychologist will confirm that the ‘social proof’ of others having bought certain funds will encourage new readers to also buy the same funds. The lists have limited value for any sort of analysis or guidance and may potentially encourage novic einvestors to but funds that are unsuited to their needs.
But there’s more. Given that many lists are reviewed and updated up to four times a year by their experts, it does nothing for the credibility of platforms in the eyes of the investing public when many continue to include funds that have incredibly poor performance records over many years. Regardless of the exhortations of the industry that one should invest for the ‘long term’, the average time a fund is held by an investor is just over 4 and a half years – so 5 years would seem to be a reasonably long time period, during which the platform could take a view on a fund’s performance. Many lists for example include Blackrock Gold and General which has lost investors over 65% of their investment in the last 5 years and JPM Natural Resources which would have lost 62% of investors’ funds, also in the last 5 years (see the chart). Given that these lists are designed for the less sophisticated investor who may rely on such lists for their decision making, this shows very poor judgement.
Of course, even if you go for one of these recommended funds you will still need to monitor the fund performance closely and keep an eye on any changes made to the lists. Even well regarded funds, with experienced fund managers, great teams and a great track record can go through periods of under performance. We look elsewhere in the blog at other considerations such as how best to monitor your fund performance, whether to be an active or passive investor and some of the psychological aspects of investing that may subconsciously affect your management of your portfolio.
Anyway, on with the lists:
There are currently 12 lists produced by platforms, some of which are produced by dedicated in-house teams and some of which are outsourced. There is an average of just over 70 funds on each list, although Willis Owen has just 15 and others have considerably more. In August this year, First State Asia Pacific Leaders had the impressive endorsement of appearing on 11 out 12 of them. We haven’t included all 12 lists and please do not read anything at all into the presence, absence or order of the lists we do show – it is merely a representative sample. Click on the title to go to the individual lists.
This is the most comprehensive, and therefore perhaps the most useful of the ‘Best Buy’ lists. The Premier Collection is updated four times a year and includes both Funds and Investment Trusts. Unlike other platforms which just put the fund in the list, BestInvest rate each fund with a Poor to Exceptional star rating and include a wealth of information on why each fund made it into the list as well as a great summary on the make up of each sector and what to look out for. Pick an investment sector, and the funds with the highest star rating will be listed first. Well worth a read!
Wealth 150 from Hargreaves Lansdown
Based on an analysis of long-term performance of individual managers, so only those who consistently do well will appear. The list is divided into the type of investment — UK bonds, say, or those which provide a monthly income. Its top picks are then listed alphabetically. It’s then up to you to decide how to view them on the screen. If it’s best performance you’re after, click onto the relevant icon. If you’re more worried about charges, you can opt to see the cheapest funds listed. If you sign up for their Newsletter you will recive Wealth 150 updates several times a year in the post.
Foundation Fundlist from Charles Stanley Direct
This ‘best in class’ list picks the best-performing funds in each sector using a drop down menu. They’re listed alphabetically rather than by preference and you have to click through each fund to the fact sheet to get any idea of past performance. If you want to know why the fund is in the Fundlist you ahve to sign up to their site.
Willis Owen outsource their list to Square Mile, an independent business that is focused on providing in depth, qualitative research on UK OEIC’s and Unit Trusts. They conduct around 1,000 interviews with fund managers each year and reckon that only 10% of active funds offer consistent added value.
TD partner with Morningstar for their data on the funds they recommend and their site allows you to look at data in each of the fund sectors. The interface is not as clean as some but the data is all accessible. They have also just published their Recommended Funds Newsletter,
The Fidelity Select List is a somewhat confusing presentation due to the pastel shades and indistinct borders of the grid style boxes. Their ‘Our View’ section on each fund initially appears to be no more than a bullet list of features, and you need to click on the blue dropdown link to see the detailed fund summary. A useful element is the ability to view different share classes of the same fund and compare the charges associated with each class – allowing you to check which fund class is the cheapest.
Fundcalibre.com site covering their Core range and then a more honed Elite selection.
100 funds chosen in conjunction with their parent FE Trustnet.
Barclays have their own list but they also feature the Citywire lists. Citywire is an independent financial publisher that has provided news, investment analysis and research for professional and private investors since its launch in 1999. The list is based on Citywire’s totally impartial analysis of the funds and managers they believe have established the best track records, operate the best investment strategies and offer the best potential for investors.
Until recently Investors Chronicle’s Top 100 Funds list was only available to paid up subscribers, but now it is available to anyone who registers on the site – Bravo! And a very good list it is too. It is built on recommendations from 10 industry experts in fund selection and uses an elegant dropdown menu system to put all the fund choices just a click away. Intelligent summaries are provided on each fund and one more click takes you to the Morningstar data sheet on each fund. A well presented and informative list.