2 of the best Investment funds to buy now

Investing in funds can be a great way to diversify and keep costs low. Harshil Patel explores two of his favourites right now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Light bulb with growing tree.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m a big fan of investment funds and exchange traded funds (ETFs). They’re a great way to diversify investments at relatively low cost, in my opinion. In my Stocks and Shares ISA, in addition to several individual shares, I also own a few carefully selected funds.

There are some factors to look at when searching for a suitable fund. First, I’d see if it leans towards value, growth or a blend of both. Next, I’d look at its geographical and sectoral focus. For instance, does it typically invest in the UK, US or elsewhere, and does it focus on any particular sectors like technology or healthcare. I’d then look at its top holdings, and past performance.

Top investment funds

My number one pick that I’d buy right now, even though I already hold it, is Fundsmith Equity. Managed by the highly-regarded investor Terry Smith, Fundsmith continues to be a staple in my portfolio. I really like its approach to investing. It aims to be a long-term investor in the shares it owns, so it doesn’t trade in and out of shares frequently. This keeps costs low and allows time for companies to perform. Fundsmith also tries to only own high-quality stocks with businesses that are difficult to replicate. This requirement for a ‘moat’ was popularised by esteemed investor Warren Buffett.

The numbers

So how has the fund performed so far? Well, performance at Fundsmith has been nothing short of exceptional, in my opinion. Since its inception in 2010 it has grown by 17% per year. More recently, over the past five years, it has more than doubled, achieving an annualised return of 15%. Looking at the shares that it owns, more than 70% are listed in the US and the largest holdings include Microsoft, and Novo Nordisk. Lastly, Fundsmith has been buying some new positions recently. One of these includes Google and Youtube owner, Alphabet. I reckon that’s a phenomenal business and I’m glad to see it become a holding.

That being said, there are a couple of stocks that could hold the fund back in the short term. Fundsmith owns shares in Paypal and Meta. Both of which recently suffered 20%+ share price declines after disappointing earnings reports. Overall though, I reckon it’s diversified enough to withstand near-term shocks in a few of its holdings.

UK’s top 100

When picking funds, I like to ensure they cover a few different locations and sectors. That’s why in addition to a global vehicle like Fundsmith, I’d consider a UK-oriented option like ishares FTSE 100 UCITS ETF (LSE:CUKX). The objective of this one is to replicate the performance of the FTSE 100 index. And one reason why I’d want to do that is because it includes several sectors outside technology.

I calculate 40% of FTSE 100 shares are either financials or industrials. This should provide me some diversification and allow me to invest in some established, and cash-generative businesses like Diageo, Tesco and BP. Bear in mind though, if I had invested in this UK fund five years ago, I would have achieved only an annual 5% return. That’s much less than the 15% per year achieved by Fundsmith. That said, I’d still own both right now. The next five years could look quite different to the last five, and I favour a mix of shares such as these two offer.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Harshil Patel owns Microsoft and units in Fundsmith Equity. The Motley Fool UK has recommended Alphabet (A shares), Diageo, Microsoft, PayPal Holdings, and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how much I’d have if I’d bought 1,000 shares in this FTSE 100 defence stock 5 years ago

I could have made a pretty penny investing in this leading FTSE 100 defence stock. Now I’m looking at a…

Read more »

Investing Articles

1 potential millionaire-maker UK stock I’d like to buy for the long haul

For long-term investors, here’s 1 UK stock to consider buying right now with the potential to help power a growth…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

These cheap UK shares look way too good to ignore right now

With the UK stock market reaching new highs recently, this Fool plans to grab these two remaining cheap shares before…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

This unloved UK stock could rise 120%, according to a City broker

Some City analysts reckon a once-popular UK stock can recover from its massive recent decline and go on to more…

Read more »

Investing Articles

These FTSE dividend shares all offer 6%+ yields!

Paul Summers highlights three FTSE dividend shares that offer big yields. But is the passive income stream sufficient to offset…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Is Legal & General Group one of the FTSE 100’s greatest value shares?

Legal & General shares boast low P/E ratios and massive dividend yields. Could they be one of the London stock…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

I’m looking for the best FTSE 100 value stocks to buy now. Have I found them?

Barclays, NatWest, and Imperial Brands shares are recovering strongly. But these FTSE 100 stocks still trade on rock-bottom earnings multiples.

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Where on earth will Nio stock be in 1 year?

Nio stock has demonstrated extraordinary volatility over the past 12 months, but where will it be in a year's time?…

Read more »