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Five fund ideas for 2018

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Important - The value of investments can fall as well as rise, so you could get back less than you invest, especially over the short term. Past performance is not a guide to future returns. Please note that income is variable and not guaranteed. The information shown is not personal advice, if you are unsure of the suitability of an investment for your circumstances please contact us for personal advice. Once held in a SIPP money is not usually accessible until age 55 (rising to 57 in 2028).


Kate Marshall

Investment Analyst

2017 has been a great illustration of why investors should look past short-term political developments.

Given the political wranglings in the UK, US and Europe, you might have thought stock markets would be in turmoil. In fact they've been anything but.

Global stock markets have largely shrugged off the uncertainty and made good progress over the year. It's a great reminder that if you're prepared to look past the negative headlines, there are often decent returns to be made.

And as we move into the new year, our central view of stock markets hasn't changed. We still think they offer exciting opportunities for income and capital growth.

Interest rates have risen marginally this year, but cash and bonds still offer little in the way of income. This means the stock market could be the best place for a decent return on your capital - provided you're happy with the inevitable rises and falls of the market.

Below we look at the five funds we think have excellent potential - in 2018 and beyond. It's important to remember investments should be made with the long term in mind. They'll fall in value as well as rise, so you could get back less than you invest.

These investment ideas are designed to give you a starting point if you're looking to choose some new investments. They aren't personal advice. If you're unsure of which investments to choose for your circumstances, we can offer you advice.

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Investment idea #1

Jupiter Income

  • UK stock market looks good value in our view
  • Manager Ben Whitmore looks for out-of-favour companies with exciting recovery potential
  • Attractive yield of 3.6% (variable, not a reliable indicator of future performance)

The UK stock market is unloved and unfashionable at present, with the uncertainty posed by Brexit making investors nervous.

But we think the pessimism is unwarranted, and this presents an opportunity to invest in dividend-paying companies at attractive prices.

When you invest in a company, you own a portion of that business and you're entitled to receive your share of any profits distributed as dividends. The best companies will grow their profits and increase the income they pay to their investors.

The UK is home to some exceptional fund managers with great track records of successfully investing in these businesses.

We think Ben Whitmore, manager of the Jupiter Income fund, is one of the very best. He looks for companies that have fallen out of favour with other investors - but where he sees a catalyst for recovery. When the market recognises this long-term potential, the share price should benefit.

It's been a successful approach. If you'd invested £10,000 in the fund five years ago and taken the income, you would have received £2,384 in income alone. That's without any capital growth included.

And those who chose to reinvest this income back into the fund would now have an investment worth £16,747. Please remember past performance is not a guide to future returns.

The fund currently yields an attractive 3.6%. Yields are variable and not a reliable indicator of future income.

We like Ben Whitmore's clear and disciplined investment approach. This fund is a great choice for investing in UK income stocks in our view, whether you're intending to take the income or reinvest it to boost capital growth. We have high hopes for the fund's future.

Please note the fund's charges are taken from capital, which can boost the yield, but reduces the potential for capital growth.

Jupiter Income - five year income and capital returns on a £10,000 investment

Source: Lipper, correct at 30/11/2017

Past performance is not a guide to future returns

Annual % growth Nov 12-13 Nov 13-14 Nov 14-15 Nov 15-16 Nov 16-17
Jupiter Income 22.6 5.5 2.5 14.2 9.5
FTSE All-Share 19.8 4.7 0.6 9.8 13.4

Fund information

Investment goal: Income
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.94% p.a.
Ongoing saving from HL: 0.34% p.a.
Net Ongoing charge: 0.60% p.a.
Vantage Service Charge: 0.45% p.a.
Maximum overall charge: 1.05% p.a.

View Fund Key Investor Information Document

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Jupiter Income
  • UK stock market looks good value in our view
  • Manager Ben Whitmore looks for out-of-favour companies with exciting recovery potential
  • Attractive yield of 3.6% (variable, not a reliable indicator of future performance)

Invest now


Investment idea #2

First State Asia Focus

  • Wealth and consumption in Asia are rising fast
  • Manager Martin Lau looks for companies that can benefit
  • Exclusive reduction in fund charges for HL clients

It's difficult to think of another part of the world quite as diverse as Asia. Filled with different cultures, histories and languages, the eastern world is full of variety - and we think this means opportunities for investors.

From Hong Kong and Singapore, already two of the world's leading financial hubs, to the frontier markets of Vietnam and Cambodia, the differences are vast.

One thing all these countries do share is a focus on prosperity. While stagnating economic growth and unease over globalisation is increasingly seen in the West, Asian countries aim to improve their trade links and integrate with others.

Rising wealth and consumption, combined with an increase in foreign investment and the spread of technology, has already transformed Asia's markets. But there's much more to come. Asian economies are poised to become the dominant engine of global growth. This is why we believe most long-term investors should have some money invested in this higher-risk area.

Martin Lau, manager of the First State Asia Focus fund, seeks companies with strong cash flows and an ability to keep costs under control. He also tries to identify companies with a distinct competitive advantage, such as a recognisable brand or a large market share. High standards of company management are also a must. He looks for businesses where the interests of the people in charge are aligned with those of shareholders.

We have long admired Martin Lau and his team's disciplined approach. His long-term track record is nothing short of exceptional, as shown in the chart below, although there is of course no guarantee this will continue and past performance should not be viewed as a guide to the future.

We recently secured a reduced ongoing charge for this fund, exclusive to investing through HL. Low charges and a first-rate management team are exactly what we look for when choosing our Wealth 150+, and in December 2017 this fund became the latest addition to the list.

Martin Lau's career track record

Source: Lipper, correct at 30/11/2017

Past performance is not a guide to future returns

Annual % growth Nov 12-13 Nov 13-14 Nov 14-15 Nov 15-16 Nov 16-17
First State Asia Focus N/A N/A N/A 27.3 22.4
FTSE AW Asia Pacific ex Japan 5.5 9.4 -7.6 31.7 19.6

Fund information

Investment goal: Growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.90% p.a.
Ongoing saving from HL: 0.15% p.a.
Net Ongoing charge: 0.75% p.a.
Vantage Service Charge: 0.45% p.a.
Maximum overall charge: 1.20% p.a.

View Fund Key Investor Information Document

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Find out more

First State Asia Focus
  • Wealth and consumption in Asia are rising fast
  • Manager Martin Lau looks for companies that can benefit
  • Exclusive reduction in fund charges for HL clients

Invest now


Investment idea #3

Man GLG Japan CoreAlpha

  • Japan is the most undervalued developed stock market
  • Prime Minister Abe is committed to boosting growth and increasing competitiveness
  • Stephen Harker has an exceptional track record investing in unloved companies

Japan is the world's third-largest economy and until recently, had spent many years in the doldrums.

This all changed when Prime Minister Shinzo Abe was elected five years ago. The new government has aimed to end the country's slump, boost economic growth and increase Japan's competitiveness.

Our analysis suggests Japan is currently the most undervalued developed stock market in the world. This means shares generally look good value relative to their long-term earnings prospects.

We view this as an attractive entry point for investors as there is greater potential for gains when investors buy at low valuations, though like all investments the fund could still fall in value.

The Man GLG Japan CoreAlpha fund is one of our favourite ways to invest in Japan. Manager Stephen Harker looks to invest against the herd, seeking unloved companies he thinks can turn things around. He buys their shares when they look cheap, aiming to benefit when others recognise the potential he has spotted and the share price rises.

With a concentrated portfolio, each holding can have a significant impact on performance, but this is a higher-risk approach. He has an exceptional long-term track record, and we think he's one of the most skilful managers investing in Japan.

Over the past ten years investors in the fund have seen growth of 192.9%, compared with 105.4% for the average Japanese fund. Please remember past performance isn't a guide to future returns.

Man GLG Japan CoreAlpha - performance over ten years

Source: Lipper, correct at 30/11/2017

Past performance is not a guide to future returns

Annual % growth Nov 12-13 Nov 13-14 Nov 14-15 Nov 15-16 Nov 16-17
Man GLG Japan CoreAlpha 44.8 3.4 15.8 28.8 11.7
IA Japan sector 31.8 1.1 14.1 23.3 17.9

Fund information

Investment goal: Growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.90% p.a.
Ongoing saving from HL: 0.10% p.a.
Net Ongoing charge: 0.80% p.a.
Vantage Service Charge: 0.45% p.a.
Maximum overall charge: 1.25% p.a.

View Fund Key Investor Information Document

View our charges

Invest now

Find out more

Man GLG Japan CoreAlpha
  • Japan is the most undervalued developed stock market
  • Prime Minister Abe is committed to boosting growth and increasing competitiveness
  • Stephen Harker has an exceptional track record investing in unloved companies

Invest now


Investment idea #4

FP CRUX European Special Situations

  • Richard Pease is an exceptional stock picker
  • European companies are growing their profits strongly
  • Stock markets in Europe currently look good value

Investors have shunned Europe since the financial crisis. Government debt levels in the euro zone called the future of the single currency into question, and economic growth was hard to come by.

But recent signs have become much more promising and we're optimistic about Europe's prospects over both the short and long term. Many European companies are making bigger profits, and over the long term this should mean rising share prices.

The economic picture is also getting brighter. Lending to companies and individuals has picked up, and this is supporting growth. Additionally, unemployment is at an eight-year low and inflation looks under control. All this should help European companies thrive.

Despite recent strength, our analysis shows European stock markets are still good value, and we don't think those yet to invest have missed the boat.

The FP CRUX European Special Situations is an excellent choice for those wishing to invest in Europe in our view. Manager Richard Pease has built a formidable reputation. Since his first venture in 1990 our analysis shows he has made investors almost 50 times their original investment. As ever, remember past performance isn't a guide to the future – there are no guarantees these extraordinary returns will be repeated.

Our detailed analysis shows Richard Pease has one of the best records of picking strongly performing stocks in Europe. He carefully chooses companies he thinks can prosper regardless of the economic and political backdrop.

They typically offer niche products and services, which makes them stand out from the competition, and have often generated consistent profits. This should bode well for their share prices over the longer term, although there are no guarantees.

He also has the freedom to invest in smaller and mid-sized companies where he feels the potential returns justify the higher risks involved.

We think the outlook for European markets is promising, and trust Richard Pease to capitalise on this in 2018 and beyond.

Richard Pease - career track record

Source: Lipper, correct at 30/11/2017

Past performance is not a guide to future returns

Annual % growth Nov 12-13 Nov 13-14 Nov 14-15 Nov 15-16 Nov 16-17
FP CRUX European Special Situations 26.3 4.2 9.1 19.7 24.6
FTSE World Europe ex UK 26.9 5.7 0.2 12.1 25.0

Fund information

Investment goal: Growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.87% p.a.
Ongoing saving from HL: 0.14% p.a.
Net Ongoing charge: 0.73% p.a.
Vantage Service Charge: 0.45% p.a.
Maximum overall charge: 1.18% p.a.

View Fund Key Investor Information Document

View our charges

Invest now

Find out more

FP CRUX European Special Situations
  • Richard Pease is an exceptional stock picker
  • European companies are growing their profits strongly
  • Stock markets in Europe currently look good value

Invest now


Investment idea #5

EdenTree Higher Income

  • A balanced income portfolio investing in shares, bonds and cash
  • Less volatile than investing purely in the stock market
  • Attractive yield of 4.2% (variable, not a guarantee of future income)

The EdenTree Higher Income fund invests in shares, bonds and cash. It could appeal to investors who need to generate an income, but don't want the risks of investing 100% of their money in the stock market.

Shares offer superior potential returns and income over the long term, while the portion of the fund invested in bonds and cash provides balance, and helps dampen some of the volatility associated with pure stock market investing.

The fund is run by the experienced Robin Hepworth. He targets businesses with good cash flows, which could help support regular dividend payments.

The fund is currently biased towards UK companies, and also holds investments in Europe and Japan. We think these areas are good value at present, as we discuss above. The manager also uses his flexibility to invest in higher-risk emerging markets.

As well as more traditional corporate bonds, the bond portion of the fund contains preference shares. These pay a fixed dividend, which is prioritised over the dividends paid to investors in the same company's ordinary shares.

The fund currently yields an attractive 4.2% and Robin Hepworth has a good track record of growing the fund’s income over the long term, although the income is variable and not guaranteed.

The fund could appeal to those seeking a high income, and who would prefer to leave the decision as to which assets to invest in to a professional. The income can also be reinvested to boost long-term growth if you wish.

Please note the fund's charges are taken from capital, which can boost the yield, but reduce the potential for capital growth.

EdenTree Higher Income - annual income from a £10,000 investment

Source: Lipper, correct at 30/11/2017

Past performance is not a guide to future returns

Annual % growth Nov 12-13 Nov 13-14 Nov 14-15 Nov 15-16 Nov 16-17
EdenTree Higher Income 12.3 6.4 -1.3 13.1 10.3
IA Mixed Investment 40-85% Shares 14.8 5.9 2.3 10.1 11.5

Fund information

Investment goal: Growth
Net initial charge: 0.00%
Ongoing charge (OCF/TER): 0.78% p.a.
Ongoing saving from HL: 0.35% p.a.
Net Ongoing charge: 0.43% p.a.
Vantage Service Charge: 0.45% p.a.
Maximum overall charge: 0.88% p.a.

View Fund Key Investor Information Document

View our charges

Invest now

Find out more

EdenTree Higher Income
  • A balanced income portfolio investing in shares, bonds and cash
  • Less volatile than investing purely in the stock market
  • Attractive yield of 4.2% (variable, not a guarantee of future income)

Invest now


Don't have time to build a fund portfolio?

Why not leave it to our experts? You can select from our Multi-Manager funds, which are managed by in-house professionals. They put their best fund ideas into single convenient investments. In our view this justifies the extra cost of our multi-manager approach.

Find out more

The HL Multi-Manager funds are run by our sister company Hargreaves Lansdown Fund Managers Ltd.

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