Outperforming the FTSE 100 is not easy. Countless hedge funds and expensive money managers fail to do this every single year. This is precisely why so many investors have been pouring capital into passive index funds over the past decade.
In fact, eight of the 10 funds with the largest capital inflows over the three months to September 30 were passive instead of active, according to research by Morningstar.
However, passively investing isn’t my style. I genuinely believe some investments can deliver better returns than the benchmark index. Here are my top two picks for exchange-traded funds (ETFs) and trusts I reckon have a better chance of out-performance over the next decade.
Indian equities
India’s pace of economic expansion has been derailed this year. Not only does the country face a slowing global economy (which impacts trade), but it’s also dealing with a banking and liquidity crisis domestically. India’s gross domestic product growth could slow to under 5% this year, the weakest pace in six years.
Nevertheless, I remain optimistic about India’s long-term prospects. Legal frameworks for businesses are improving, the population’s median age (27 years) is far below most other countries, and the nation’s technology start-up ecosystem is vibrant.
JP Morgan Indian Investment Trust offers great exposure here. The trust’s top 10 holdings include some of India’s most popular blue-chip stocks such as Tata Consultancy Services, Axis Bank and ITC.
Over the past 12 months, each unit of the trust has traded at an average discount of 10.4% to net asset value (NAV). Even as I write this, the discount to NAV is 9.2%. In other words, it’s undervalued.
Considering the fact that India’s economic growth is likely to be far ahead of Britain’s, I believe the chances of this trust beating the FTSE 100 are very high.
Automation technology
Emerging markets are not the only sector I expect to grow faster than the FTSE 100. The emerging trend of automation and robotics technology is also likely to create tremendous value for early investors over the next few decades.
By 2021, the automation industry is estimated to generate around $238bn (£184bn) globally, according to Statista.
L&G ROBO Global Robotics and Automation GO UCITS ETF offers investors exposure to this nascent sector. While the largest segment of the fund (44%) is devoted to robotics start-ups and technology companies in the US, its largest holding is actually a British company called Blue Prism Group.
Warrington-based Blue Prism provides software that allows its corporate clients to automate mundane and repetitive tasks like data entry. The stock constitutes 1.9% of the ROBO ETF and should give you an idea of the other stocks in their portfolio.
The ETF is up 24.5% year-to-date and currently trades on par with NAV.
Bottom line
I believe India and the global automation sector will both grow faster than the UK economy, which is why the ETFs mentioned here could probably outperform the FTSE 100 over the foreseeable future.
