Six funds with the X Factor
The build-up to Christmas has officially begun: Strictly Come Dancing and the X Factor are back on...
‘The New Fiver’ has arrived. Launched with much fanfare by the Bank of England—who have even made the new £5 its own website!—the polymer note follows in the footsteps of Australia, whose citizens have been able to wash, scrunch and spill drinks on their money since 1996.
But apart from subjecting your cash to additional wear and tear, what else could you do with a fiver? Invest it, of course!
£5 a week makes £260 a year. If you could put aside just this much, every year, from your 21st birthday until the day you turn 65, you’d have saved £11,440. If you invested your annual savings into a few different funds via a stocks & shares ISA, and you got an average annual rate of return of 5%, you could end up with £40,229¹.
Many of us could spare a regular £5 – sacrificing roughly the cost of a pint every week for the sake of perhaps some extended travel in retirement or just being able to have a slightly more comfortable lifestyle. Here are a few funds you could consider if you want to start growing your savings for the long term.
Neatly tying in to the New Fiver theme, Elite Rated Neptune UK Mid Cap’s third largest holding is in fact the company that manufactures the polymer notes – De La Rue. A reasonably unknown financial and security business, De La Rue does all sorts of interesting things like manufacturing bank notes, creating passports and identity data management. They are joined in the fund by a range of other smaller and medium-sized UK companies in industries including industrials, consumer staples and health care.
Small and mid-cap companies can be more volatile than large stocks, but may make for good long-term investment options as they have often more growth potential. For example, the FTSE 250—which is the index most commonly used to track the performance of UK mid caps—has returned 97% over the past 5 years, versus the FTSE 100—just the UK’s 100 largest companies—which returned 52%. This fund itself has outperformed both a long shot, with total returns of 141%².
Another UK equity fund, but with a bit of a difference. The Elite Rated Schroder Recovery fund is a patient and deep value-driven fund. This means the two managers, Nick Kirrage and Kevin Murphy, look for companies that are trading significantly below their intrinsic ‘value’ (measured via various financial indicators), but that have a potential catalyst in their future for change. The overarching theory is that when you buy something that’s ‘cheap’, you have a better shot at making money in the long run if its value appreciates.
The fund holds a range of small, medium and larger sized businesses. They also invest a small percentage of the portfolio—around 15%—in international equities.
With a real focus on finding the ‘best companies of tomorrow’, in some of the world’s most promising emerging markets, the Elite Rated Lazard Emerging Markets fund may be a solid choice for those with the time to see through these growth stories.
Like Schroder Recovery, Lazard Emerging Markets employs an element of value investing, with manager James Donald looking for ‘unloved companies’ that he believes offer strong financial productivity. This has contributed to the fund’s long-term outperformance of its benchmark. I also like that the Lazard analysts are worldwide, undertaking in-depth fundamental research of every company which they consider for investment.
It is important to remember that emerging market funds do carry extra risks compared to UK shares – they are more volatile by nature, due to the economies they invest in, and also largely impacted by currency movements, which can work for or against investors.
¹The Calculator Site, compound interest calculator, £21.60 invested monthly, 44 years, 5% interest rate, compounded yearly
²FTSE 100 v FTSE 250, TR in GBP, 15/09/2011–15/09/2016