Once upon a time fund managers ruled the investment world, with the top performers lauded as stars whose stock picking skills could thrash the market and make ordinary investors rich.
Today the cult of the fund manager is fading as research repeatedly shows the vast majority struggle to consistently beat the market.
Investors have tired of paying over the odds for underperformance and are surging into passive low-cost exchange traded funds (ETFs) instead, which do nothing more heroic than track the performance of a particular market or asset class.
Fund managers have to work much harder to prove their worth and most are fighting a losing battle, especially since their higher fees act as a further drag on performance.
There are still some stars out there, however, so we asked a few UAE-focused advisers which managers can still shine in these passive times.
The following fund picks will not be for everybody; you need to ensure they match your personal circumstances, attitude to risk, and other investments you currently hold in your portfolio. You can do your own research on sites such as Morningstar.com and Trustnet.com.
Most of these funds are registered in European countries such as Ireland, Luxembourg, the UK, France and Germany, and marketed globally under the Undertakings for the Collective Investment of Transferable Securities (UCITS) regulatory framework of the EU. They are often available in a choice of sterling, euros and US dollars.
The best way to buy them is through an online stockbroker or advisory site in your country of origin, or an offshore platform such as Interactive Brokers (interactivebrokers.com), Saxo Bank (saxobank.ae), Swissquote Bank (swissquote.ae) and Internaxx (internaxx.com).
This is often cheaper than buying direct from the fund manager as the best platforms discount initial fund charges or drop them altogether, sparing you an upfront charge of between 3 and 5 per cent. Some even offer a rebate on the fund's annual management charges.
It is important to remember that even the best fund managers are only human, and therefore fallible. Past performance is no guarantee of future success and with stock markets riding at all-time highs you must beware of a correction.
Steven Downey, chartered financial analyst candidate at Holborn Assets in Dubai, names Dunn Capital as his favourite global mutual fund.
It was founded in 1974 by William Dunn, a pioneer in making rules-based investment decisions entirely on data, eliminating all subjectivity and emotion. “Dunn Capital aims to make money whether markets go up or down, for example it grew an impressive 15 per cent in 2008 at the height of the financial crisis, when markets fell around 40 per cent,” says Mr Downey.
The UCITS fund manages US$1 billion of assets and has a minimum investment of $10,000 and an annual management fee of 0.8 per cent, although it also charges a 25 per cent performance fee, which can be controversial. It is up an impressive 89 per cent over five years.
Oliver Smith, portfolio manager at IG Group, which has operations in the UAE, picks out the oddly named Scottish Mortgage Investment Trust, launched back in 1909 and still going strong today.
An investment trust is a special type of mutual fund whose shares are traded like ordinary stocks. Scottish Mortgage is listed on the FTSE 100 and can be easily traded through any share-dealing site that offers UK equities. “The trust invests in a global portfolio of companies and has posted a highly impressive 205 per cent growth over the last five years, almost double the 109 per cent on the FTSE All-World index,” Mr Smith says.
He adds: “The portfolio is high conviction, with a growth tilt, and long-term positions in technology winners such as Amazon, Alibaba and Facebook.”
The trust manages $8.8bn and has low ongoing charges of just 0.44 per cent a year, which makes it one of the cheapest actively-managed funds.
Fundsmith Equity Fund
Tom Anderson, investment manager at Killik, which advises expat clients in the UAE, tips the hugely popular Fundsmith, a UCITS eligible global fund run by the renowned Terry Smith.
“Fundsmith invests in a small number of high quality, resilient, global growth companies that are trading at attractive valuations and that it intends to hold for a long time," says Mr Anderson.
Top holdings include PayPal, Amadeus IT, Microsoft, Novo-Nordick and Dr Pepper Snapple. “It has a large weighting in US, which makes up almost two thirds of the portfolio, plus UK companies and some European exposure,” Mr Anderson adds.
Fundsmith Equity has grown 177 per cent over the past five years and charges 1 per cent a year, according to figures from Trustnet.com.
Ardevora Global Equity Fund
Mr Anderson also tips the Irish-domiciled Ardevora Global Equity Fund, which takes both long and short positions on individual companies and wider market sentiment. “It takes a bottom-up approach to stock selection, looking for cases where market sentiment is out of line with the underlying fundamentals such as stock prices and valuations.”
Just over half the $1.14bn UCITS-eligible fund is invested in the US, with the remainder in Europe, Japan and the rest of the world. It has grown 128 per cent over five years, against 87 per cent on its global equity benchmark, with ongoing charges of 1.58 per cent a year.
Fidelity Global Dividend
For those wanting to generate income, Mr Anderson recommends Fidelity Global Dividend, which focuses on companies that pay attractive dividend yields with the potential for share price growth as well. “It targets global stocks with strong balance sheets and quality earnings streams trading at attractive valuations.”
Top holdings include Johnson & Johnson, Taiwan Semiconductor Manufacturing, Procter & Gamble and Royal Dutch Shell. “The fund currently yields 3 per cent which suggests a focus on quality cashflow,” Mr Anderson adds.
Fidelity Global Dividend has grown 101 per cent over the last five years, and has an annual management charge of 0.75 per cent.
Lindsell Train Japanese Equity Fund
Dzmitry Lipski, funds analyst at online investment site Interactive Investor, tips Dublin domiciled UCITS fund Lindsell Train Japanese Equity Fund for investors seeking exposure to the world’s third-largest economy. “Seasoned manager Michael Lindsell aims to run a concentrated portfolio of 20 to 30 exceptional, cash-generative businesses,” says Mr Lipski.
Investors should be aware that, due to the bias to high-quality companies, the fund may underperform in strongly rising markets when investors are bullish and taking more risks.
This $242 million specialist fund has risen 151 per cent in the past five years and has an ongoing charge of 0.8 per cent a year.
Fidelity Emerging Markets Fund
Mr Lipski also recommends Fidelity Emerging Markets Fund, which invests in fast growing countries in Africa, Asia, the Indian sub-continent, Latin America, Eastern Europe and Middle East.
He says the fund could make a strong core portfolio holding. “Manager Nick Price targets high-quality growth stocks while avoiding those with poor corporate governance,” says Mr Lipski.
He also prioritises stocks with high returns on equity that can fund their growth from free cash flow. “His prudent approach has historically made this one of the lower-risk funds in a volatile peer group,” Mr Lipski adds.
The fund is up 88 per cent over five years although it has a high ongoing charge of 1.9 per cent a year.
M&G Global Macro Bond Fund
Investors looking to offset higher risk stock market holdings with bond market exposure should consider M&G Global Macro Bond Fund, Mr Lipski says.
The fund invests across a broad range of fixed-income assets, including government and corporate bonds in both developed nations and emerging markets. “Manager Jim Leaviss has the freedom to select any global assets he believes are likely to benefit from prevailing market trends and economic conditions,” says Mr Lipski.
This $3bn fund charges 1.42 per cent a year, although its lower risk profile means it has returned a modest 31 per cent over five years.
Schroder US Mid Cap Fund
Ryan Hughes, head of fund selection at online platform AJ Bell, names Schroder US Mid Cap Fund as his preferred method of investing in the US. “Active fund managers find the US market difficult to beat, particularly at the moment with the S&P 500 being driven by tech giants such as Amazon and Facebook,” he says.
Schroder US Mid Cap avoids these behemoths to find value in medium-sized companies that have been mispriced by the market or look set for a turnaround, Mr Hughes says. “Manager Jenny Jones is hugely experienced, disciplined in her approach and conscious of the price she pays for companies. With so much attention on large US stocks right now, mid caps may be an interesting way of gaining US exposure.”
This $2.7bn fund is up an impressive 152 per cent over five years, against 123 per cent for its benchmark, but with a relatively high ongoing charge of 1.6 per cent a year.
Crux European Special Situations
European markets are up around 25 per cent over the last year, according to MSCI, and Mr Hughes tips Crux European Special Situations for those wanting exposure. “It is managed by the veteran Richard Pease, who has three decades of experience and focuses on companies with exceptional management and a market-leading position,” he says.
Mr Pease takes a high conviction approach. “He finds more opportunities in medium and smaller companies and while it can be more volatile than its competitors, he is proof that talented stock pickers can add significant value.”
This $2.6bn UCITS eligible fund has ongoing charges of 0.87 per cent a year and has grown 114 per cent over five years, against 87 per cent on its benchmark.
Invesco Perpetual Asian
Fund manager Invesco Perpetual has a strong pedigree in Asia and Australasia, Mr Hughes says, with a consistent track record of outperformance. "Manager Will Lam combines wider macro-economic and detailed company analysis to find the most compelling opportunities."
The result is a high-conviction portfolio of 50 to 70 stocks that Mr Lam believes will outperform the market. Its pragmatic and flexible approach can respond to changing market conditions, Mr Hughes says.
This $2.24bn UCITS eligible fund has ongoing charges of 0.9 per cent a year and has grown 113 per cent over five years, against 69 per cent on its benchmark, Trustnet shows.
Baillie Gifford Global Alpha
Mr Hughes also tips this globally diversified fund from Baillie Gifford, an investment firm that is below the radar for many investors. “Its focus on growth investing has been spot on in recent years and well rewarded with strong performance.”
The firm’s partnership structure means managers have long tenures, with a focus on low costs and charges, he adds. “It invests in companies that can grow their earnings strongly and invests with little regard to geography. For long-term global equity exposure, this is a very interesting investment."
This $1.4bn Irish-domiciled UCITS fund has low ongoing charges of 0.6 per cent a year and has grown 130 per cent over five years, against 86 per cent on its benchmark.