What can you do with a fiver?

Darius McDermott 14/09/2016 in Equities

‘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.

Neptune UK Mid Cap

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.

Schroder Recovery

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.

Lazard Emerging Markets

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

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.