This article is more than 6 months old
It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.
We look at what’s happened in the UK economy, how the stock market’s been coping, and how our Wealth Shortlist funds have fared.
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.
It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.
It's been a tumultuous few months in politics.
Less than three years after winning a landslide election victory, Prime Minister Boris Johnson agreed to step down following a series of damaging scandals.
The list of potential successors has been narrowed to two – Foreign Secretary Liz Truss and former Chancellor Rishi Sunak. The winner will be decided by a ballot of Conservative party members, with a result expected to be announced on 5 September. The winner will officially become prime minister the following day.
Whoever claims the office has a number of serious challenges awaiting them. The cost-of-living crisis, ongoing public sector disputes, the war in Ukraine, louder calls for Scottish independence and restoring trust in the UK political system are just a few.
After 30 years of relatively stable inflation, rising prices have come back with a vengeance. Rising energy costs, constrained food supplies and global supply chain disruptions pushed inflation to a 40-year high of 9.4% in June. It could last longer than some expect too.
High levels of employment across the economy puts workers in a strong position to negotiate higher pay. This increases costs for businesses, which can force them to increase the prices of their goods and services, thereby fuelling further inflation.
Some data suggests that high inflation is hitting retail sales, business activity and consumer confidence, which increases the likelihood of a recession.
The main lever the Bank of England has to bring inflation down is raising interest rates. This increases the cost of borrowing money, reduces disposable income and limits growth in how much we all spend.
The Bank's hiked rates from 0.1% to 1.25% since December 2021, with the most recent 0.25% rise coming in June. But the rate rises aren't expected to stop there. Some think rates will rise as much as 0.5% at the Bank's next Monetary Policy Committee meeting in August.
The Governor of the Bank of England Andrew Bailey recently reiterated that inflation is a clear and present danger facing the economy. And that the Bank remain committed to bringing inflation back down to the 2% target.
The UK's central bank is walking a tightrope though. Raise rates too fast and it risks exacerbating the already serious cost-of-living crisis as borrowers with variable loan or mortgage rates could struggle to service their debts. But raise them too slowly and inflation could get completely out of control.
The UK stock market fell 5.04% in the three months to the end of June. However, it still outperformed other European stock markets and the broader global stock market.
Large companies, which have tended to hold up better during periods of uncertainty, fell 3.74%. Medium-sized and smaller companies fell 11.60% and 10.55% respectively. Remember though, past performance isn't a guide to the future.
Sector-wise, high levels of economic uncertainty meant areas of the stock market that have tended to make money regardless of what's happening, like healthcare and telecoms, performed well. In contrast, more economically sensitive sectors, like technology and mining, performed poorly.
This article isn't personal advice. If you're not sure if an investment is right for you, ask for financial advice.
Investing in 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.
We've met with several UK-focused fund managers in recent months, including Anthony Cross and Julian Fosh, managers of the Liontrust UK Growth fund. They think the secret to successful investing is to find the few companies with an 'economic advantage' – a sustainable edge over the competition that will allow them to earn above-average profits for the long term.
They recently invested in personalised greeting card company Moonpig. The company has a big share of its market, a distribution network that would be very difficult for competitors to replicate and is attractively valued, according to the managers.
This fund has a holding in Hargreaves Lansdown plc.
FIND OUT MORE ABOUT LIONTRUST UK GROWTH, INCLUDING CHARGES
LIONTRUST UK GROWTH KEY INVESTOR INFORMATION
We also met Richard Bullas and Daniel Green, two of the three managers of the FTF Franklin UK Mid Cap fund. They noted a big pick up in mergers and acquisitions within the higher-risk small and medium-sized companies markets. This was boosted by low valuations and weaker sterling, which makes UK companies cheaper for overseas buyers. They think this indicates the value currently on offer within certain parts of the UK stock market.
FIND OUT MORE ABOUT THE FTF FRANKLIN UK MID CAP FUND, INCLUDING CHARGES
FTF FRANKLIN UK MID CAP KEY INVESTOR INFORMATION
Our Wealth Shortlist selections delivered mixed performance over the past year, although we usually expect this from a diversified range of funds.
If all your funds in a sector are performing well at the same time, they're probably investing in similar areas. That's great when those areas are in favour, but can be painful when they're not. Make sure you take a diversified approach. This means choosing a good mix of managers who have a variety of strengths, styles and areas of focus.
For more details on each fund and its risks, see the links to their factsheets and key investor information below. Remember, past performance isn't a guide to the future. Investments and any income they produce can fall as well as rise in value, so you could get back less than you put in.
The best performing fund in the UK Growth sector of the Wealth Shortlist over the past year was the Legal & General UK 100 Index. Remember, this is over a very short time frame and past performance isn't a guide to future returns.
The fund aims to track the FTSE 100 – an index of the 100 largest companies listed on the UK stock market. The fund's focus on large companies, which outperformed their smaller peers, boosted performance.
AXA WF Framlington UK was a weaker performer. The fund's faced headwinds on several fronts.
A focus on small and medium-sized companies proved painful in an environment where larger companies outperformed their smaller counterparts.
The manager's growth-focused investment style has also been out of favour. More recently, investors have generally preferred companies whose share prices don't reflect their true value, overwise known as 'value' investing.
Finally, the fund also suffered from a lack of investments in strongly performing sectors like energy, and a focus on the underperforming tech sector.
All fund managers endure periods of weaker returns though. Overall, we're encouraged that the manager is staying true to his investment process, which has delivered strong returns over the long term. We continue to have conviction in Chris St John, and his fund's long-term prospects.
Annual percentage growth | ||||||
---|---|---|---|---|---|---|
Jun 17 -
Jun 18 |
Jun 18 -
Jun 19 |
Jun 19 -
Jun 20 |
Jun 20 -
Jun 21 |
Jun 21 -
Jun 22 | ||
AXA WF Framlington UK | 11.25 | 3.17 | -6.90 | 23.31 | -15.52 | |
Legal & General UK 100 Index | 8.01 | 1.31 | -13.10 | 16.47 | 5.80 | |
FTSE All-Share | 9.02 | 0.57 | -12.99 | 21.45 | 1.64 | |
IA UK All Companies | 9.16 | -2.09 | -11.11 | 27.46 | -8.59 |
Past performance is not a guide to the future. Source: Lipper IM, to 30/06/2022.
FIND OUT MORE ABOUT AXA WF FRAMLINGTON UK, INCLUDING CHARGES
AXA WF FRAMLINGTON UK KEY INVESTOR INFORMATION
FIND OUT MORE ABOUT LEGAL & GENERAL UK 100 INDEX, INCLUDING CHARGES
LEGAL & GENERAL UK 100 INDEX KEY INVESTOR INFORMATION
The strongest performer in the UK Equity Income sector of the Wealth Shortlist over the past year was the Jupiter Income fund. Manager Ben Whitmore's value-style approach boosted returns over the past year following several years of weaker returns. We think this highlights the benefits of retaining a diversified portfolio.
IFSL Marlborough Multi Cap Income was a weaker performer. Unlike most other UK Equity Income funds, this one focuses on dividend-paying small and medium-sized businesses.
Higher-risk smaller companies underperformed their larger peers over the past year, and this dragged on performance. Despite this, we still think the fund's differentiated approach could make it a good diversifier within a broader income focused portfolio.
Annual percentage growth | |||||
---|---|---|---|---|---|
Jun 17 -
Jun 18 |
Jun 18 -
Jun 19 |
Jun 19 -
Jun 20 |
Jun 20 -
Jun 21 |
Jun 21 -
Jun 22 | |
Jupiter Income | 7.61 | -4.76 | -20.58 | 28.75 | 5.03 |
IFSL Marlborough Multi Cap Income | 9.69 | -1.46 | -14.00 | 25.69 | -9.21 |
FTSE All-Share | 9.02 | 0.57 | -12.99 | 21.45 | 1.64 |
IA UK Equity Income | 6.17 | -2.73 | -13.58 | 25.49 | -0.30 |
Past performance is not a guide to the future. Source: Lipper IM, to 30/06/2022.
FIND OUT MORE ABOUT JUPITER INCOME, INCLUDING CHARGES
JUPITER INCOME KEY INVESTOR INFORMATION
FIND OUT MORE ABOUT IFSL MARLBOROUGH MULTI CAP INCOME, INCLUDING CHARGES
IFSL MARLBOROUGH MULTI CAP INCOME KEY INVESTOR INFORMATION
Of the Wealth Shortlist funds in this sector, HSBC FTSE 250 Index was the strongest performer, although it still lost money.
This fund fully replicates the FTSE 250 Index, meaning it invests in every company in the index, and in the same proportion. We think the fund is a good way to invest in a broad range of medium-sized companies with exciting growth potential at a low cost.
Royal London UK Smaller Companies had a weaker year following several years of strong performance compared to the broader market of UK smaller companies. We think the fund has the potential to do well over the long term, although there are no guarantees and smaller companies are higher risk than their larger counterparts.
Annual percentage growth | |||||
---|---|---|---|---|---|
Jun 17 -
Jun 18 |
Jun 18 -
Jun 19 |
Jun 19 -
Jun 20 |
Jun 20 -
Jun 21 |
Jun 21 -
Jun 22 | |
HSBC FTSE 250 Index | 9.82 | -4.01 | -9.58 | 33.01 | -15.16 |
FTSE 250 | 10.57 | -3.82 | -9.97 | 33.44 | -14.59 |
Royal London UK Smaller Companies | 13.16 | -3.18 | 0.22 | 49.42 | -25.63 |
FTSE Small Cap | 8.33 | -2.03 | -7.40 | 50.13 | -12.56 |
Past performance is not a guide to the future. Source: Lipper IM, to 30/06/2022.
FIND OUT MORE ABOUT HSBC FTSE 250 INDEX, INCLUDING CHARGES
HSBC FTSE 250 INDEX KEY INVESTOR INFORMATION
FIND OUT MORE ABOUT ROYAL LONDON UK SMALLER COMPANIES, INCLUDING CHARGES
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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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