Experts pick their top UK funds for Mindful Money

29th April 2013


It emerged last week that Britain’s economy narrowly missed slipping into a ‘triple-dip’ recession, as official figures showed 0.3% growth for the first three months of 2013. While the data was welcomed, it was hardly inspiring and markets generally took the figure in their stride, with the FTSE 100 up 2% over the week.

But the UK economy is not ‘UK plc’, and many UK firms derive big profits and sometimes the majority of their profits from overseas. A cursory glance at stock market performance data, paints a very different picture to the UK’s ‘economic finances’. Over the past 12 months, to close of business, Friday 26 April, the FTSE 100 index had risen by 12%, while the wider FTSE All Share is up by more than 13%. And despite the volatility which has gripped markets in recent years, many UK investment funds have delivered stellar returns to their investors. Mindful Money asks four experts for their top UK fund picks.

Darius McDermott, Managing Director at IFA group Chelsea Financial Services

McDermott cites the Axa Framlington UK Select Opportunities fund as one of his firm’s top UK picks. The fund manager Nigel Thomas specialises in seeking out stocks offering growth at a reasonable price. McDermott says: “Nigel Thomas has a very long track record in investing and is highly experienced with some 30 years under his belt. This is a multi-capitalisation, unconstrained equity portfolio, in that it is not limited to investing in say just UK large cap stocks; he can also invest in medium and small cap stocks too.” Over the past five years the £3.6bn portfolio has achieved a return of 52%, robustly outperforming the average UK All-Companies fund – the portfolio’s peer group – of 32%. McDermott’s also rates the £397m Threadneedle UK Equity Alpha Income fund. Managed by Leigh Harrison and Richard Colwell, the fund has returned 43% over the past five years, versus an IMA UK Equity Income sector average of 35%. McDermott says: “This is a slightly more concentrated portfolio in comparison to the typical equity income fund and again has the backing of a very experienced manager. And it currently yields circa 4.5%.”

Peter Chadborn, Financial Planner at Plan Money

Chadborn highlights the £1bn Old Mutual UK Mid Cap fund. Run by Richard Watts, he aims to provide investors with capital growth from investing typically in a portfolio of medium sized UK companies, from the FTSE 250 index. Chadborn says: “This has consistently outperformed every year over the past five years – an uncommon achievement.” Over five years it has achieved a 70% return for its investors (versus a 32% average). Chadborn also rates the £7.5bn M&G Recovery fund, a portfolio which focuses on the underdog. Its manager Tom Dobell, invests in unloved and undervalued companies, which he believes have the potential to recover and deliver compelling returns over the long term. The fund is up 30% over five years, behind the IMA UK All-Company sector average of 32%. Chadborn says: “The fund manager invests in a diversified range of companies which are deemed out of favour. While it has had a poor couple of years, its manager is highly regarded. He has such a good long-term record and proudly invests for the long-term. The timing could be very good to get into this fund. I am confidence it will get back to its previous consistent impressive performance.”

Ben Yearsley, head of investment research at Charles Stanley Direct

Yearsley points to the Casenove UK Smaller Companies fund. Its manager Paul Marriage adopts an entirely bottom-up process and invests in UK companies which make-up the bottom 10% of the stock market by market value. Yearsley says: “This fund has top quality management behind it, demonstrating they can add value.” Over the past five years, the £438m fund has delivered a very strong return of 110%, more than double the average UK Smaller Companies fund, of 55%. Yearsley also likes the £596m Marlborough Special Situations fund, another UK Smaller Companies fund. According to Marlborough, the objective of the fund is to invest in smaller companies, new issues and companies going through a difficult period with good recovery prospects. The portfolio is hugely diversified, holding almost 250 stocks, which helps to control volatility. The fund manager Giles Hargreave has been behind the fund for almost 15 years. Over the past five of those he has returned 81% to investors.

Neil Shillito, director, SG Wealth Management

Neil Shillito, director, SG Wealth Management, believes Standard Life UK Equity Unconstrained, managed by Edward Legget, is worthy of investor attention, albeit ones with a higher risk tolerance. He says: “This is not a fund for widows and orphans. It is concentrated, unconstrained by benchmarks and managed with high conviction. Despite its volatility, the manager delivers.” A member of the UK All Companies Sector, it has achieved a sizeable 111% return for its investors. Shillito also cites the Downing Active Managed Fund, a new portfolio – it just marked its two year anniversary earlier this year. Co-managed by Judith Mackenzie and William Barker, the pair run a highly concentrated portfolio of just 20-30 stocks. Shillito adds: “This is a new fund but the management is very experienced.”



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