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2 fast-rising investment funds that could make you a millionaire

Diversification has become a central part of investing for many investors. After all, having a range of companies within a portfolio can lead to lower company-specific risk and less chance of major losses. Therefore, it appears to be an avenue worth pursuing.

However, some funds have taken diversification to an extreme level. In fact, some investors would argue that a number of active funds are ‘closet index-trackers’, such is the range and number of shares they hold. As such, their returns and risk levels differ little from those of their benchmark or wider index.

With that in mind, here are two funds that are relatively concentrated and which appear to take bold decisions on which companies to buy, rather than seeking to offer a near-copy of the wider index. They could both deliver further outperformance after stunning recent growth.

Growth potential

Since its inception in 2010, the Fundsmith Equity Fund has recorded an annualised return of 20%. During the same time, the MSCI World Index has risen at a rate of 12.9% per annum. Therefore, the fund has delivered significant outperformance versus global shares, with further potential gains ahead.

The fund is relatively concentrated, with it invested in just 29 stocks at the present time. It is also biased towards the US, with 61.9% of its holdings being listed in the US. However, this does not perhaps paint an accurate picture of its geographical diversification, since many of its holdings are global companies which have operations in a range of regions across the world.

With the healthcare, consumer staples and technology sectors making up 84.9% of the fund’s investments, it appears to have a potent mix of defensive characteristics and growth potential. The fund seeks to keep things simple in terms of holding high-quality companies for the long run, with minimal turnover and a lack of market timing. As such, it appears to be a sound means of investing for the long term.

Strong track record

Also offering investment potential for the long term is the Lindsell Train Global Equity Fund. It has risen in value by 202% since its launch in March 2011. This is an outperformance of the MSCI World Index of 81% and suggests that its strategy is sound.

As with Fundsmith, it is a relatively concentrated fund. It aims to hold between 20 and 35 stocks at any one time, with turnover generally low. This increases company-specific risk compared to investing in a fund which more closely mirrors a particular index. However, it also means the potential rewards are also likely to be higher.

The Lindsell Train Global Equity Fund concentrates on consumer stocks, with 59.8% of it held in consumer discretionary or consumer staples companies at the present time. The likes of Unilever and Diageo are among the fund’s top holdings, and they provide it with access to the fast-growing emerging world while also delivering a degree of geographic diversity. As such, it appears to offer the potential for high returns in the long run, and could continue to outperform global share prices in future years.

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Peter Stephens owns shares in Unilever and Diageo. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo. 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.