A fund investing in UK shares is often the first port of call for UK-based investors.
And for good reason. The UK stock market is home to many world-class companies. From international giants selling their products and services across the globe to a diverse array of smaller businesses.
The UK is a rich hunting ground for fund managers. UK Growth funds aim to grow the value of an investor’s money over the long term, although each manager will go about this in a different way. Some focus on larger companies in the FTSE 100 Index, others invest in higher-risk smaller or medium-sized companies, and some have the flexibility to invest in companies of any size.
Similarly, some fund managers are more constrained than others. Some aim not to deviate significantly from the performance of the broader stock market. Others have more freedom to take risks – they might invest in a small number of companies and run a concentrated portfolio, for example.
The overall makeup of the UK stock market is quite different to other global markets. For example, it includes more oil & gas and financial services companies than many of its peers. We think UK-focused funds can be used to diversify a portfolio of overseas funds. In particular, global funds tend to have a focus on the technology industry, an area that currently only makes up a small part of the UK market.
A conclusion to Brexit talks removed some uncertainty for investors in the UK stock market, but lots of uncertainty remains. The impact of the coronavirus crisis will be felt for years to come, and markets will remain sensitive to news about the pandemic. Many UK companies earn money from operations across the globe, so the UK market is also sensitive to geopolitical developments, including the recent Russian invasion of Ukraine.
We still think many homegrown companies can survive uncertainty over the long run though, just as they have in the past. The UK is also home to some exceptional fund managers with great track records of adding value. We think the UK is often a good starting point for investors, and most long-term growth portfolios should have some exposure.
The decision of which funds to invest in can be difficult. We’ve narrowed the field to those we think have the greatest long-term performance potential, which feature on the Wealth Shortlist.
Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.
The UK stock market rose 13.03%* over the past year as the country continued its recovery from the Covid-19 pandemic, which wreaked havoc across the globe. Large companies led the charge, rising 16.08%, followed by smaller companies, which rose 5.50%. Medium-sized companies were the weakest performers, falling 0.55%.
Over the year, the IA UK All Companies sector rose 5.26%. That means the average fund in the IA UK All Companies sector underperformed the broader UK stock market by 7.77%.
|Mar 17 -
|Mar 18 -
|Mar 19 -
|Mar 20 -
|Mar 21 -
|FTSE Small Cap||2.21%||-3.09%||-24.37%||74.91%||5.50%|
|IA UK All Companies||2.76%||2.89%||-19.22%||37.93%||5.26%|
Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2022.
Since the discovery of several Covid-19 vaccines in November 2020, a wave of optimism has spread through stock markets. 'Value' focused funds, which invest in unloved companies with the potential to recover, generally came out on top, following several years of weaker performance. In contrast, funds investing in faster-growing companies (usually measured by earnings or cash flow), otherwise known as 'growth' companies, didn’t do so well, although they still made money.
Sector wise, some sectors did better than others. The oil & gas sector was the best performer. Life returning to some sort of normality boosted demand for oil globally, while the war in Ukraine and other geopolitical issues constrained supply. This pushed the oil price to $130 per barrel – its highest level in over a decade. The utilities and healthcare sectors also delivered strong returns. Consumer goods and technology were among the weaker performers.
Stock markets are cyclical. What’s in favour today won’t remain in favour forever. That’s why we think it’s important to build a portfolio with exposure to many different investment styles, sectors, countries and asset classes, and invest for the long term. Remember though, all investments can fall as well as rise in value, so you could get back less than you invest, and past performance is not a guide to the future.
The fund reviews below are provided for your interest but are not a guide to how you should invest. For more information, please refer to the Key Investor Information for the specific fund. Remember all investments and income from them can fall as well as rise in value so you could get back less than you invest. Past performance is not a guide to the future.
There is a tiered charge to hold funds with HL. It is a maximum of 0.45% p.a. - view our charges. Comments are correct as at 31 March 2022.
Wealth Shortlist fund reviews
Chris St John tries to grow investors' money over the long term by investing in high quality companies with the potential to benefit from economic trends. He invests in companies of any size, including higher-risk smaller ones.
The manager looks for themes that are likely to drive stock market growth over the long term and thinks about how they could change consumer behaviour. Current themes include increased life expectancy, automation and low-carbon economy solutions. Then he identifies companies likely to benefit as those themes develop over time. He tends to invest in companies with several common characteristics, including high barriers to entry for competitors, the ability to raise prices without impacting demand for their products or services and experienced senior management teams.
The fund's performed well over the long term. Our analysis puts this down to the manager's ability to invest in companies with bright futures ahead of them, whatever size they are or sector they're in. The manager has typically limited losses in turbulent times, although we'd expect the fund to lag the broader market when it rises quickly.
More recently, the fund hasn’t done as well as the broader UK stock market. This was mainly down to the manager’s growth-focused investment style going out of favour. Instead, investors preferred businesses that are expected to do better during an economic recovery. Oil & gas companies, for instance, performed extremely well over the year, and the fund’s lack of exposure held back performance. Past performance is not a guide to the future.
Please note the AXA WF Framlington UK Fund is an offshore fund so investors may not be protected by the Financial Services Compensation Scheme.
Alex Wright is a contrarian. He looks for unloved and undervalued companies where other investors have overlooked the potential for growth or positive change. He'll invest in companies of any size, including higher-risk smaller ones.
Wright invests in companies that often go ignored by other investors. Maybe they've missed a profit target, or the management team made some unpopular decisions. Either way, the company must be on the road to recovery. Corporate strategy plays an important part in a company's recovery, so Wright spends lots of time meeting company managers.
As the company improves, its share price should rise as other investors begin to recognise the change. As the price rises, Wright gradually takes profits and moves on to the next unloved opportunity. Remember, not every company will recover, and some may fail altogether.
In 2021, the fund significantly outperformed the broader UK stock market. Returns were boosted by the manager’s ability to invest in companies with outstanding prospects, according to our analysis. Performance in the first three months of 2022 has been weaker though. Despite a resurgence in the manager’s value-focused investment style, the fund’s underperformed the UK stock market over the period. This was mainly a result of the fund’s sector positioning – a lack of exposure to metals and mining proved painful as those sectors delivered some of the best returns across the market while consumer-focused sectors, which the fund is focused on, underperformed.
The manager has the flexibility to invest in derivatives which, if used, adds risk.
This fund aims to track the performance of the FTSE 100 – an index of the largest companies listed on the UK stock market.
The fund's made up of around 100 companies across sectors like consumer staples, financials and healthcare. While these companies are based in the UK, many sell products and services across the globe, so they're not solely reliant on the UK economy to be successful. The fund's tracked its index tightly and efficiently since launch although, as you would expect from an index tracker fund, it’s fallen behind the benchmark over the long term because of the costs involved in running the fund.
The fund aims to track the performance of the FTSE All-Share; a broad index of UK companies.
The fund invests in around 610 large, medium-sized, and higher-risk smaller companies based across the UK. Since launch it’s tracked its index tightly and efficiently although, as you would expect from an index tracker fund, it’s fallen behind the benchmark over the long term because of the costs involved in running the fund.
This fund is managed by a team of four whose different strengths, styles and areas of focus are carefully blended together.
The four managers behind this fund are free to invest their portion of the portfolio wherever they see the best opportunities. This means the fund combines more established companies that have consistently grown profits, with those that have been through a difficult time and have the potential to recover.
The blended approach used by the managers, combined with a focus on small and medium-sized companies, makes this fund different to many of its peers. We think it's managed by a strong team with the potential to deliver good returns over the long term. Their investments in smaller companies add risk though.
Please note this fund holds shares in Hargreaves Lansdown plc.
Anthony Cross and Julian Fosh invest in companies with barriers to entry from competition including intellectual property (such as patents, trademarks or brands), established distribution channels and significant levels of repeat business. They invest in UK businesses of all sizes, including higher-risk smaller ones.
The fund's done well since the managers took control in March 2009, significantly outperforming the broader UK stock market. Our analysis puts this down to the managers' ability to select companies with bright futures ahead of them. The fund's focus on high quality companies means it's tended to lag the broader stock market when it has risen quickly, but held up better when markets turned negative, although past performance isn't a guide to the future.
We think the fund's run by two experienced managers with a robust investment process that's served them well over the years. We therefore expect it to deliver good returns over the long term, although there are no guarantees. The managers have the flexibility to invest in derivatives which, if used, adds risk.
Please note this fund holds shares in Hargreaves Lansdown plc.
Latest research updates
Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.
Our expert research team provide regular updates on a wide range of funds.