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  • Five funds to watch for 2022

    We reveal our fund ideas for the year ahead and beyond.

    five funds to watch in 2022

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Kate Marshall, Senior Investment Analyst

    In the past year the global economy has continued its recovery from the effects of the Covid-19 outbreak. This economic recovery hasn’t been a completely smooth ride, though, and has differed by country and region.

    From year to year, it’s one thing trying to predict what’s ahead of us economically, let alone what the impact will be on global markets. The coronavirus pandemic has been a perfect example of this – a once in a lifetime event followed by unpredictable market moves and government action.

    Markets performed differently in 2021 compared to 2020 and this is once again a reminder that a diversified portfolio makes sense for most investors. Remember to also consider your longer-term goals and attitude to risk when thinking about any investment.

    This year we have again picked a mix of funds that could appeal to a variety of investment goals. Importantly, these should not be considered standalone investments, and only as part of a wider investment portfolio.

    Remember investments should always be made for the long term – we suggest at least five years. This article isn’t personal advice or a recommendation to invest and remember all investments can fall as well as rise in value – you could get back less than you invest. If you’re not sure an investment is right for you, please seek advice.

    Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.

    Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

    Yields are variable and not guaranteed. Past performance isn’t a guide to the future.

    Information correct as at 21 June 2022 unless otherwise stated.

    Keep an eye on our funds to watch

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    To follow these funds, tap the ‘add to watchlist’ button below the name of each pick. Then log in to your account to keep track online or with the HL mobile app.

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    Pyrford Global Total Return

    Inflation-beating returns?

    Inflation has been on the rise around the world over the past year. Supply constraints, rebounding demand, and rising energy prices, have all conspired to push inflation higher.

    While key central banks of the US, UK and EU initially expected higher inflation to prove ‘transitory’, it’s risen quickly in 2022 and has led to interest rate rises in an attempt to bring inflation back down. This is a balancing act, as raising rates too far or too quickly could stall the economic recovery and can be tough for markets to digest.

    While a range of investments can outpace inflation over time, there are funds that have the specific objective of beating inflation over the medium term. For example, some total return funds.

    Total return funds typically invest in a mix of investments including shares, bonds, commodities and currencies. The managers usually have flexibility to change the mix of investments, in line with their views, to try to generate positive returns in a range of market environments.

    Total return funds are more conservative than funds that invest fully in company shares. While this means they’re unlikely to keep up with stock markets when they rise quickly, they’re more likely to offer some shelter when share markets fall. They're not guaranteed to make money though. Like any investment, they will fall as well as rise in value.

    The team behind the Pyrford Global Total Return Fund have three key aims. Their first is not to lose money over a 12-month period. Their second is to deliver an inflation-beating return over the long term, and thirdly, to do this with low volatility – fewer significant ups and downs in value than a fund invested entirely in shares.

    The team invests flexibly but aims to keep things simple by focusing on a mix of shares, government bonds and cash. The shares could generate long-term growth, though they can be volatile in the short term. They can invest in companies across the globe, with the flexibility to invest in emerging markets, which increases risk if used.

    The bonds and cash are expected to perform differently and bring some stability to the fund. We think this could be a good option as part of a more conservative portfolio, or a way to bring some stability to a broader investment portfolio.

    As this is an offshore fund, you are not usually entitled to compensation through the UK Financial Services Compensation Scheme.


    The Switch Your Money On podcast from Hargreaves Lansdown

    Listen to Emma Wall discuss these fund ideas using the Spotify player, or open with your preferred podcast app using the buttons below.

    This podcast isn’t personal advice. If you’re not sure what’s right for you seek advice. Investments rise and fall in value, so investors could make a loss.

    Artemis Global Income

    Scouring the globe for dividends

    Global dividends have made a comeback.

    Many companies were forced to cut or suspend their payments to shareholders in 2020, after the pandemic caused havoc, led to lockdowns, and put pressure on businesses across the globe. But global dividends rebounded throughout 2021.

    Notably, soaring commodity prices have boosted profits in the mining sector and pay-outs to shareholders. The banking sector has also made a significant contribution to rising global dividends, as regulators have lifted restrictions on paying dividends. The UK and Australia benefited the most from these trends, but Europe, the US and parts of Asia and the emerging markets also saw increases.

    Global equity income funds invest in companies across the globe, with the aim of paying a rising income. This includes the Artemis Global Income Fund.

    Jacob de Tusch-Lec, along with his co-manager James Davidson, scour the globe for companies they think can earn plenty of cash that can be used to pay dividends. They look beyond the usual names that make up many global income portfolios, and often invest in out-of-favour companies at attractive prices (known as value investing), those that are more sensitive to the health of the economy and those lower down the size spectrum, including higher-risk smaller companies.

    The fund also has the ability to invest in emerging markets and, although they don't currently feature in the fund, the managers can invest in high-yield bonds and derivatives, all of which add risk.

    De Tusch-Lec combines his company selection with a view on where the global economy is headed and tilts the fund according to his outlook. The fund’s value style of investing won’t always be in favour with the market, which will sometimes favour growth companies. This means the fund can provide useful diversification from growth funds. For example, most global income funds don't invest much in sectors such as technology because of the lack of dividends these companies pay.

    History shows though that value investing can work well over the long term and different styles come in and out of favour at different times. We think most broader investment portfolios should have exposure to a range of geographies, asset classes, and styles of investing.

    De Tusch-Lec is an experienced global income fund manager and has stayed true to his investment philosophy over many years. He also has the support of other global and income analysts at Artemis. This fund could diversify an income portfolio and work well with more growth-focused funds.

    The fund's charges can be taken from capital. This increases the yield, but reduces the potential for capital growth.

    Trojan Ethical Income

    An ethical approach to UK equity income

    It’s been a tough few years for the UK. With Brexit negotiations ongoing, the coronavirus pandemic was a shock to the system in 2020 and hit the market hard. Dividend-paying companies initially took a lot of the brunt of the setback, as income payments were slashed to preserve cash or to abide by rules implemented by regulators.

    Against the backdrop of a recovering economy, many companies reinstated payments in 2021. For some businesses this is at a lower rate compared with pre-pandemic levels, but this could make payments more sustainable over the longer term. While dividends in the near term are likely to be lower than we've been accustomed to in recent years, we expect the UK to remain a place for income over the long run.

    The rising cost of living and concerns around economic growth means negative sentiment towards the UK remains, though it has been one of the better performing global stock markets in the first half of the year. As always past performance is not a guide to future returns.

    UK equity income funds have traditionally achieved much of their income from areas such as mining and tobacco. Some investors prefer to avoid these areas, so this is where a fund like Trojan Ethical Income could come in.

    Hugo Ure, the fund’s manager, doesn’t invest in companies deemed unethical, such as those with significant involvement in armaments, tobacco, pornography, fossil fuels, alcohol, gambling and high interest lending. He also conducts Environmental, Social and Governance (ESG) analysis on each company to achieve a deeper understanding of the risks. Where he feels improvements can be made, he’ll engage with the company.

    While a large part of this fund invests in the UK, it isn’t in the IA UK Equity Income sector. That’s so the team can maintain flexibility and invest part of the fund overseas, particularly if they can’t find enough income opportunities in the UK that meet their ethical and quality criteria.

    Around two thirds of the fund is currently invested in UK companies. The remainder invests in countries such as the US and Switzerland. The team won’t generally invest more than 30% of the fund overseas, and it will always have a significant focus on UK businesses.

    The fund’s diversified across a range of industries, although the manager tends to find lots of opportunities in consumer goods, healthcare and business software firms. The focus is on large and medium-sized companies, although the manager does have the flexibility to invest in higher-risk smaller companies too.

    This fund could bring diversification to an income-focused portfolio or be a good addition to a responsible investment portfolio built to provide income.

    The fund takes charges from capital, which could boost the income, but reduces the potential for capital growth. The manager also has the flexibility to invest in derivatives which, if used, adds risk.


    Legal & General Future World ESG Developed Index

    An option for investing responsibly, across the world

    Responsible investing has become more and more popular. Environmental, social and governance (ESG) funds are increasingly available and thinking about ESG when building a portfolio has become more important for investors.

    This is because more people want to take the issues they care about most into account in all aspects of life, including investing. Not only can this have a positive impact on the environment and society, but issues related to the way a company is managed can cause reputational damage, impact profits and drag down a company’s share price.

    Responsible investment funds give you the chance to make money in a way that’s in line with your principles. Some avoid investing in areas that do harm, like tobacco producers, weapons manufacturers or alcoholic drinks makers. Others invest in companies that have a positive effect on society – from those that treat their employees well, to those that create clean energy through wind farms or solar panels.

    Legal & General Future World ESG Developed Index invests across developed stock markets while being mindful of ESG issues. It aims to track the performance of the Solactive L&G ESG Developed Markets Index, which is made up of around 1,500 companies based across the globe. Around 66% of the fund currently invests in US-based companies, with the rest invested across areas such as Japan, the UK and Europe.

    The fund is focused towards sectors such as technology, pharmaceuticals and financials. It won’t invest in tobacco companies, pure coal producers, makers of controversial weapons or persistent violators of the UN Global Compact Principles.

    An index tracker fund is one of the simplest ways to invest, and this fund could be a good addition to a broader investment portfolio aiming to deliver long-term growth in a responsible way. It could also be a good addition to a portfolio of other tracker funds. Given the focus on developed markets it could also help diversify portfolios focused on emerging markets. To try and bring it back more in line with the index, the team can use derivatives. The use of derivatives adds risk.


    Source: Legal and General, correct to 31/10/2021

    JPMorgan Emerging Markets

    Venturing further afield in search of long-term growth

    Lots of Asian and emerging economies were heralded in 2020 for the way they handled the pandemic. Swift and strict lockdowns helped to contain the virus, allowing some countries to lift restrictions sooner than developed nations.

    Things were a little different in 2021. While lots of developed countries adopted a strategy of rolling out Covid-19 vaccinations as quickly as possible, some eastern economies lagged and entered new lockdowns. It means many emerging markets have been out of favour with investors over the year, though this could present an opportunity for more contrarian investors.

    It also goes to show different markets will perform well, or poorly, from year to year. We think emerging markets have strong long-term growth potential. Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the region. Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth. These countries have also become hotbeds of innovation and some companies based there are at the forefront of technology.

    This development is expected to continue over the years, which could provide exciting growth opportunities for investors. We think JPMorgan Emerging Markets is well-placed to take advantage of the changes taking place across these markets. It's managed by experienced investors Leon Eidelman and Austin Forey, who also have a large team of analysts behind them.

    Investing in emerging markets comes with risks though, especially as their political and regulatory environments are less evolved, or different, than developed markets. This can also create more volatility than developed markets. The fund also has the flexibility to invest in smaller companies, which adds risk.

    The team focuses on companies with good cash flows and low debts, and we think this is a good approach to investing in these markets. The fund provides diverse exposure to countries ranging from China and India, to Taiwan and Brazil. Overall, we view it as a great choice for adding a bit of spice to a portfolio, which aims to boost long-term growth potential.

    This fund is a more adventurous way to try to grow wealth over the long term. It could help diversify a global portfolio focused on long-term growth and sit well next to funds that mainly invest in developed markets.


    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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