Bestinvest names top funds it thinks will outperform the market

DIY investing platform Bestinvest has revealed the latest version of its best fund and investment trust list with five new members added and seven dropping out.

With the end of the tax-year fast approaching, the coming weeks are typically peak season for investors choosing investments for their Isas and pensions.

But with so many funds and investment trusts on offer, offering exposure to a plethora of sectors and regions, it can be difficult for the everyday investor to work out the best place to put their money. Hence, many DIY investing platforms offering their own best funds lists.

Twice a year investment platform Bestinvest publishes its The Best Funds List, which includes traditional open-ended investment funds – known as OEICs – investment trusts and ETFs.

The 127 strong list includes 105 funds managed by well-known fund management firms as well as smaller boutique outfits, including 30 investment trust.

There are also 22 low-cost ‘passive’ options, which include 10 exchange-traded funds (ETFs), two exchange traded commodities (ETCs) and 10 index tracker funds.

For those who want to make sure their investments do not clash with their values, there are 28 investment opportunities within sustainable, responsible or environmental, social impact and governance strategies.

There are five new funds since Bestinvest published last year: Allianz Technology Trust, Murray Income Trust, Fulcrum Diversified Absolute Return, Ninety One Global Environment, Fidelity European.

But seven funds highlighted on last year’s list have not made the cut, including Fidelity Emerging Markets, Liontrust Sustainable Future Monthly Income Bond and FP WHEB Sustainability.

Bestinvest’s top funds include Blackrock UK Income, Artemis UK Select and Baillie Gifford Global Discovery.

The list highlights the funds the investment platform thinks can outperform their peers and respective benchmark indices.

Bestinvest’s experts follow ’10 commandments’ when making their picks, favouring managers who are not constrained by hugging benchmarks, have a clearly defined approach, personally invest in their own funds and are willing to limit the size of their funds if this starts to hamper the way they are managed.

Jason Hollands, managing director of Bestinvest, said: ‘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.’

UK funds

Political and economic events, including the disastrous mini-Budget, rocked UK markets last year, with more domestically focused indices suffering a sharp drop in value. 

But the UK stock market still outpaced peers such as the S&P 500 in 2022 thanks to its minimal exposure to tech companies and a higher number of banking, energy and mining stocks.

‘UK industry sectors that have struggled include technology stocks, punished for their high valuations, and housebuilders,’ Bestinvest said. 

‘Retailers have also struggled as cautious consumers watch the pounds, while airlines have stalled as the expected post lockdown travel boom failed to take off.

‘Financial stocks, such as banks, have fared better with rising rates boosting margins, while pharmaceutical stocks have also been in good health. Energy stocks such as BP and Shell as well as miners have benefited from soaring commodity prices.’

Concerns about high interest rates and a possible hit to companies’ profits remain this year, with the UK forecast to be the only leading economy to fall into recession this year, according to the IMF.

But Bestinvest said there are still some growth and income funds that could outperform the market.

Among the UK growth funds is Liontrust UK Growth, which holds a majority of FTSE 100 stocks like Covid vaccine group AstraZeneca and Guinness brewer Diageo.

Mercantile Investment Trust also makes the list, with its diversified portfolio of UK mid and small‑cap companies that experts at Bestinvest describe as ‘tomorrow’s UK market leaders’, such as Watches of Switzerland.

‘The trust has a good track record of outperforming the FTSE 250 and its most direct mid‑cap peers,’ says Bestinvest.

Meanwhile, the recent shift away from high growth towards value stocks is set to benefit the income sector, according to the report.

Among the top UK income funds, Bestinvest has selected Murray Income Trust, which is managed by abrdn and invests in the likes of consumer goods giant Unilever and miner Anglo American, and has grown its dividend every year since 1973.

‘Manager Charles Luke looks for high-quality large-cap companies with good balance sheets, experienced management, strong corporate governance, attractive valuations, and robust earnings potential,’ the report says. 

Bestinvest also highlighted Montanaro UK Income, which invests in a broad range of small- and mid-cap companies with a maximum market value of £10billion, such as storage company Big Yellow. 

‘Manager Charles Luke looks for high-quality large-cap companies with good balance sheets, experienced management, strong corporate governance, attractive valuations, and robust earnings potential,’ the report says. 

North American funds

US markets experienced their fair share of blows in 2022, with the S&P 500 ending last year down more than 19 per cent as tech giants such as Microsoft, Amazon and Apple all struggled.

‘At a time of low interest rates and low growth, the high-growth rates that the tech sector offers are highly prized by investors but when rates go higher, they are less willing to pay high prices for technology shares,’ Bestivest said.

‘Other corporate titans such as JP Morgan and General Motors have also reversed.’

Although there are signs of improvement in the US economy, with inflation starting to come down and the Fed slowing the pace of interest rate hikes, 2023 could be another volatile year for US markets. 

But Bestinvest says opportunities in such a deep and broad market remain. 

‘Energy, defence, and health stocks may look attractive with even tech stocks in the frame with their cheaper valuations,’ it added.

Among the top picks are Premier Miton US Opportunities, which invests in North American companies of all sizes across all sectors. 

Besinvest experts rate its philosophy ‘that running a focused portfolio in “boring” stocks with consistent, sustainable earnings is the best way to beat the market’. 

London-based boutique Findlay Park also makes it in the list, with holdings including tech titan Microsoft and Warren Buffett’s Berkshire Hathaway.

‘The fund has a stellar record over time, particularly in protecting capital in difficult market conditions,’ says the report.

You can read Bestinvest’s full Best Funds list here