Buying a fund for your ISA can be a challenging process. Do you go for a popular pick such as Neil Woodford’s Equity Income fund, or do you pick one on the back of its performance track record? Do you stick to the UK, or invest internationally? There are many variables to consider.
Personally, when I invest in funds, I tend to pay a lot of attention to the investment style of the portfolio manager. I like managers who focus on high-quality, dividend-paying companies. I also go for funds that are reasonably priced and can demonstrate strong long-term performance track records. With that in mind, here’s a look at three I’ve invested in within my ISA. The first is UK-focused, while the other two are global funds.
Franklin UK Rising Dividends
What I like about this one is that the portfolio managers have a very specific focus on companies that regularly increase their dividends. For example, top holdings include Unilever, Diageo, and RELX – which all have strong dividend growth track records. It’s an excellent strategy, in my view, as companies that regularly increase their dividend payouts tend to see their share prices rising over time, meaning investors often benefit from both capital gains and dividends.
The performance of this fund has been very respectable. According to figures from Hargreaves Lansdown, over three years it has returned 31%, while over five it has returned 49%. It’s cost-effective too, with a low fee of just 0.55% per year through Hargreaves. A small fund at just £86m, I think this is one of Hargreaves Lansdown’s best-kept secrets.
Lindsell Train Global Equity
For international exposure, I’ve gone with the Lindsell Train Global Equity fund. The reason for this is that portfolio manager Nick Train – who is often referred to as Britain’s Warren Buffett – has an excellent long-term performance track record, and I really like his investment style which, like that of Buffett, focuses on high-quality companies. Top holdings here include Unilever, Heineken, and PayPal.
Performance here has been absolutely brilliant. Over three years, the fund has returned 88% while over five, it has returned 153%. That makes it the best performing global fund over three years on Hargreaves Lansdown and the second best over five years. Yet despite this performance, it’s cheap because it’s listed in the Hargreaves Wealth 50 list. With a fee of just 0.51% per year, what’s not to like?
Finally, I’ve also gone for Terry Smith’s Fundsmith Equity fund. This is another global fund that has performed incredibly well in recent years. Indeed, it actually pipped the Lindsell Train Global Equity fund to be the top performing global fund on Hargreaves Lansdown over five years with a return of 160%. Performance over three years has been excellent too, with the fund returning 74%.
Another ‘quality’ focused portfolio manager, Smith has very strict criteria when it comes to picking stocks. Specifically, he looks for companies that have advantages that are difficult to replicate, have strong balance sheets, and can demonstrate high returns on operating capital. Clearly, this approach works when you look at the fund’s track record. Top holdings here currently include PayPal, Microsoft, and Reckitt Benckiser.
This one is slightly more expensive than the other two with an annual fee of 0.95%, however, given Smith’s impressive performance track record, I think that fee is justified.
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Edward Sheldon owns shares in Unilever, Diageo, and Reckitt Benckiser and has positions in the Franklin Rising Dividend fund, the Lindsell Train Global Equity fund, and the Fundsmith Equity fund. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Microsoft, PayPal Holdings, and Unilever. The Motley Fool UK has recommended Diageo and RELX. 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.