Funds to trust as faith hits an all-time low

Faith in the financial system is at an all-time low. So is there anywhere you can put your money with confidence? Merryn Somerset Webb looks at some funds that should perform even in today's markets.

Here's a good statistic for you: 36% of Americans believe in UFOs, but only 22% feel they can trust their banks. So there you have it. More US citizens expect their country to be invaded by aliens than expect fair treatment by the global financial system.

I can't offer you comparable numbers for the UK we don't appear to do quite as many surveys on the existence of extraterrestrials. But my guess would be that the trust number, at least, is much the same.

It makes sense. After all, over the past few years, we have sometimes slowly and sometimes quickly discovered that the least important stakeholder in the banking industry is the client. This week, dominated as it has been by the Libor interest-rate rigging scandal, has been one of the worst for those trying to convince us that the sector just has more than its fair share of bad apples.

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But this isn't only about banks: the big casualty in the financial industry has been trust across the board in sovereign finances, in politicians, in financial salesmen of every kind, and in more asset classes than not.

In his latest investment letter, Troy's Sebastian Lyon quotes from Graham Greene's England Made Me: "A man at my age should not have to worry about money. My father never had to worry. Consols were good enough for him. But today one can't even trust government stocks."

It's the kind of complaint you hear much of the time today: not only can you not be sure of government finances but, given the low yields on bonds issued by 'secure' governments, you can't trust that buying gilts or Treasuries will give you a real return, either.

But what of equities? Can you trust them? If you pick them well in good developed markets, perhaps more so than you can most other things.

Two weeks ago, I mentioned the Lindsell Train UK Equity Fund here and I have since looked at the dividend histories of the companies in the fund. According to fund manager Nick Train, the average weighted increase in dividends across the portfolio is "over tenfold". At the same time, almost all the companies held have "increased their most recently announced dividend in real terms". That's not bad.

I mentioned the Lindsell Train Fund in the context of the search for reasonably priced, active, very focused funds with a good record and the chance of doing well in volatile, but sideways moving markets like today's. I also asked for suggestions. You've obliged.

One I didn't mention was Terry Smith's first Fundsmith fund. Terry wrote in to point this out, as did many of you. Terry isn't a man to cross, so I'm pleased to be able to say that his fund does genuinely fit the bill (phew). It has delivered impressive performance since its launch last year. It was up 7.8% in 2011, even as the IMA Global Growth fund sector as a whole fell nearly 10%. This year, it has delivered its investors 7% so far.

There is no guarantee that this will continue, but the fund does offer the main thing I said I was looking for: focus. It aims to hold between 20 and 30 stocks, all of which are in "high quality, resilient, global growth companies that are good value and which we intend to hold for a long time, and in which we invest our own money".

Another suggestion was the Scottish Mortgage Investment Trust, which I hold myself.

Less obvious were some new and 'boutique' fund offerings.

Lindsell Train has another fund the Lindsell Train Global Equity Fund which was launched only last year with only 24 holdings. Its record is too short to tell us much, but it but might still be worth keeping an eye on.

But a new one to me was the initial offering from Phoenix Asset Management. One of the firm's partners emailed me to say that this fund holds a mere 16 stocks. And, if you think that's feisty, how about this? Its largest holding is Barratt Developments which accounts for more than 30% of the fund.

That might make you feel a little nervy, but check out the returns. While the FTSE All-Share index has returned 67% since the firm's inception in 1998, the fund has returned nearly 200%. That's nice. Not so nice is the £100,000 minimum investment and the fact that the performance fee removes so much of the return: before fees, that 200% was 287%.

I'm also rather taken with another reader suggestion: Mundane Asset Management (I like the name). This group runs a World Leaders Fund that has hugely outperformed the market over the past five years. It's offshore and it charges too much to meet my requirement for cheapness: 1.2% annual management, plus a performance fee. It also has a minimum investment of $100,000.

These last two might be of interest to those with deep pockets and no qualms about performance fees. They look to be run by the right kind of managers. But most of us, I think, will find it easier to go with Nick Train or Terry Smith for now.

This article was first published in the Financial Times

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.