Tired of buying the same old presents for Christmas? This year you could put a fund under the Christmas tree for yourself or your loved ones. It’s a gift that can have an incredible impact over the long-term, helping to fund a property deposit, retirement pot or university fees.
But how to choose? We have looked at funds that are Gold-Rated by Morningstar analysts and have also secured a five-star performance rating, meaning they have outperformed their peers over a rolling-three-year basis.
However, it is up to the individual investor, or their financial adviser, to decide on the best asset allocation (which asset class, geographical region or sector exposure you want) to meet their investment needs.
Gold Rated Funds
At least six UK-domiciled funds that are available for sale in Europe fit the bill. These include five equity and one allocation fund.
The ASI UK Smaller Companies, run by Harry Nimmo since 1997, has produced an annual return of 13% over the last five years. This year is down 0.8%, however, still way ahead of its benchmark and its Morningstar category, UK Small-Cap Equity.
It's worth noting that having five stars does not mean a fund has delivered positive returns; indeed, the ASI fund is down 0.8% so far in 2020, in a year that has been difficult for smaller companies. But the five-star rating does indicate that a fund has outperformed its peers over three years.
Largest holdings in the 53-srong portfolio include the miniature wargames group Games Workshop (GAW) and FTSE 250 media company Future (FUTR).
| Fund | Morningstar Category | YTD Return (%) | 5-Year Annualised Return (%) |
| ASI UK Smaller Companies | UK Small-Cap Equity | -0.8 | 13.0 |
| FSSA Asia Focus | Asia-Pacific ex-Japan Equity | 14.7 | 15.7 |
| FSSA Greater China Growth | Greater China Equity | 23.9 | 18.6 |
| Fundsmith Equity | Global Large-Cap Growth Equity | 15.9 | 19.2 |
| Stewart Inv Asia Pacific Sustainability | Asia-Pacific ex-Japan Equity | 18.0 | 14.1 |
| Vanguard LifeStrategy 20% Equity | GBP Cautious Allocation | 6.6 | 5.8 |
Also in the list are funds which focus on regions further afield, such as the FSSA Asia Focus and FSSA Greater China Growth, which invest as their names suggest in Asia and China. The two have produced annual returns of 15.7% and 18.6% respectively over the past five years. They are also both up year to date, and the Chinese fund has done particularly well as China was first in, first out of a Covid-19 lockdown. Morningstar analyst Germaine Share likes the fund's manager, Martin Lau: “He is an expert investor, having delivered impressive returns across his mandates,” she says.
Fundsmith Equity, meanwhile, is run by veteran investor Terry Smith, who is known for his buy and hold approach. A focus on strong consumer brands has led the fund to stellar long-term performance, with annualised returns of 18.24% over 10 years.
Stewart Investors Asia Pacific Sustainability has a sustainable mandate and invests in companies across Asia, holding names such as Hong Kong beverage company Vitasoy International Holdings (00345) and Japanese hygiene products manufacturer Unicharm (8113). Stewart Investors is one of the few funds assigned a "Leader" rating under Morningstar's ESG Commitment Level, a new tool that identifies the best-in-class funds in the context of ESG investing.
Last but not least, an allocation funds run by Vanguard make it to the list. There are actually four funds in the Vanguard range which meet the criteria; what differentiates them is the different level of risk they take on, which translates in different ratio of equities and fixed income. However, investors should be careful as the amount of risk taken does not always equate to greater returns.
