FTSE 100 tracker funds have a number of advantages. For starters, they provide exposure to 100 different large-cap companies. This means they offer investors an element of diversification. Secondly, they provide exposure to a number of world-class companies, such as Unilever, Diageo, and Sage. Third, they’re cost-effective, as fees are generally very low.
However, my view is that a mix of top actively-managed funds and high-quality stocks could potentially deliver higher returns than a FTSE 100 tracker in the long run. Here’s a look at three top global equity funds that have outperformed the FTSE 100 by a wide margin recently.
Outperforming a FTSE 100 tracker
One fund that I view as a good investment is Fundsmith Equity. This is a large global equity fund that is managed by portfolio manager Terry Smith.
Since its launch in late 2010, Fundsmith has delivered outstanding returns for investors. For example, for the five-year period ending 31 December 2019, Fundsmith delivered a return of around 132% versus 41% for the FTSE 100. More recently, the fund has held up very well in the stock market crash, returning -8% in the first quarter of 2020, versus -24% for the FTSE 100.
One reason this fund has delivered such great returns for investors is that Smith has very strict investment criteria when it comes to picking stocks. Instead of investing in a wide range of companies, he only invests in a handful of high-quality, resilient businesses that have advantages that are difficult to replicate.
Fundsmith is significantly more expensive than your average FTSE 100 tracker. Fees through Hargreaves Lansdown are 0.95% per year plus platform fees. But I believe this is well worth it, given the fund’s track record.
A focus on ‘exceptional’ companies
Another actively-managed fund I hold in high regard is Lindsell Train Global Equity.
Like Fundsmith, Lindsell Train Global Equity has delivered stunning returns for investors in recent years. For the five-year period to the end of 2019, the fund returned a very impressive 147%. And for the first quarter of 2020, it returned -11%, outperforming FTSE 100 tracker funds by a long way.
This is another fund that focuses on high-quality businesses. Specifically, portfolio managers Nick Train and Michael Lindsell look for ‘exceptional’ companies that demonstrate long-term durability in cash and profit generation. Looking at the fund’s long-term performance track record, this approach seems to deliver.
This fund is available on the Hargreaves Lansdown platform with a low fee of 0.5% plus platform fees. At that price, I believe it’s a great core investment.
Finally, a third fund I’d buy over a FTSE 100 tracker is Blue Whale Growth.
This is a relatively new global equity fund that was only launched in September 2017. I wouldn’t let the lack of a long-term track record put you off though. Since its inception, its performance has been fantastic. Last year, Blue Whale Growth returned 28%, and the year before it returned 9%. By contrast, the FTSE 100 returned 17% and -9%.
Like the two funds above, Blue Whale is a concentrated fund that focuses on high-quality companies. Specifically, portfolio manager Stephen Yiu looks for companies that have the ability to grow over the long term, and that are attractively valued. Judging by the performance of the fund, Yiu is a good stock picker.
Overall, there’s a lot I like about this under-the-radar global equity fund. Fees are 0.89% per year plus platform fees through Hargreaves Lansdown.
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Edward Sheldon owns shares in Hargreaves Lansdownm Unilever, Diageo and Sage and has positions in Fundsmith Equity, Lindsell Train Global Equity, and Blue Whale Growth. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and Sage Group. 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.