As this year’s Stocks and Shares ISA deadline looms, I’m hunting around for top funds to put in my investment portfolio. While writers on the Fool mostly buy individual UK shares, for overseas exposure I prefer to spread my risk with investment funds.
It strikes me as a safer way of tapping into trends such as US technology, emerging markets or smaller companies. Here are five top funds that have caught my eye this year.
I find it hard to overlook the UK’s most popular choice, Terry Smith’s £22bn bad boy FundSmith Equity. The fund has returned 125% over five years, and impressively, 28% over the past turbulent year.
Stocks and Shares ISA picks
Smith invests in a concentrated portfolio of primarily US stocks but with some UK and European exposure. Fundsmith’s top holdings include tech giants such as Microsoft, PayPal Holdings and Facebook, but also old-school stocks such as Estée Lauder, Philip Morris International and Novo Nordisk. This blend helped him survive the recent tech sell-off in better shape than the equally popular Scottish Mortgage Investment Trust.
Past performance is no guarantee of future returns and I will check how much exposure I have to the US in the rest of my portfolio before sealing the deal.
The pandemic may have started in China, but the country has shrugged off Covid-19 faster than most and is growing again. I would get exposure to the world’s second largest economy through investment trust JPMorgan China Growth & Income. This is one of the top China funds, rising 348% over five years. However, I’m expecting some volatility, as it has plunged 22% in the last month.
When the world comes out of lockdown, I reckon top smaller company funds will outpace the wider market. They tend to perform better when sentiment is high, but fall faster during difficult times. Since I’ve planned to hold these funds for at least 15 years, I can accept the added risk.
I would add to my existing stake in Marlborough UK Micro Cap Growth. This is up 125% over what has been a difficult five years for the UK economy. Over 12 months, it’s up 48%. It’s a high-risk, high-return fund.
These are my top funds
I will soothe my own nerves by balancing it with a broad-based international fund, say, Lindsell Train Global Growth, run by star managers Nick Train and Michael Lindsell. They target a spread of solid names such as Walt Disney, Heineken Holdings and PepsiCo, plus UK blue-chips such as the London Stock Exchange Group, Diageo and Unilever. It has underperformed lately, growing just 2% in six months, but that’s forgivable after delivering 125% over five years.
Value stocks are coming back in favour after years when growth held sway, and I would play this theme with Fidelity Special Situations. Although its five-year performance looks poor at 36%, it’s up 26% in the last six months. It would balance out the other top funds listed here, which are largely going for growth.