The best performing funds to invest in right now

Finding the best performing funds to invest in right now

In this article I highlight the best performing funds over 10 years and 5 years. I also highlight the best investment fund managers in the UK. Yet you shouldn’t just focus on past performance over 5 or 10 years alone.

As one of the most frequently quoted investment experts in the UK national press, including The Times and The Telegraph, I will show you how to pick the best performing funds to invest now. That is very different from simply opting for the best performing funds over the last 5 or 10 years.

In fact I would invest in hardly any of the top performing funds over the last 5 or 10 years and neither should you

Funds are inconsistent and you should invest in funds that suit the current economic and investment environment. I will show you how I successfully identify the best funds to invest in with an increased chance of performing well going forward.

First of all...the funds to avoid

Before I move on to the best funds to invest in it's also important to be aware of the funds to avoid. Unfortunately, there are a number of popular funds that should be avoided as they will hit your returns. You can download a useful list of these funds which the research calls 'dog funds'. So download the guide and use it as a reference point.

Best performing investment funds to invest in

The tables below show the best performing funds to invest in over 5 years and 10 years. All these funds can be held in a Stocks and Shares ISA or a Self Invested Personal Pension (SIPP). The percentage return shown is the total return figures which assumes all income and dividends are reinvested. The funds are grouped by fund sector so you can see the best performing funds for the most popular fund sectors. We have shown the top decile performers, rather than the top 10 investment funds, for each sector because each sector contains a different number of funds.

While the funds below would have been the best funds to invest in over the last 10 years and 5 years,  within their respective sectors, there is no evidence that they will continue to perform well as I show later. In fact taking such a long term view masks long periods of underperformance. I elaborate on this below in the section titled How to pick the best performing funds to invest in now.

The top performing funds over 10 years

Asia Pacific Excluding Japan

Europe excluding UK

Japan

Mixed Investment 0%-35% Shares

Mixed Investment 20%-60% Shares

Mixed Investment 40%-85% Shares

North America

Sterling Corporate Bond

Sterling High Yield

Sterling Strategic Bond

UK All Companies

UK Smaller Companies

The top performing funds over 5 years

Asia Pacific Excluding Japan

Europe Excluding UK

Japan

Mixed Investment 0%-35% Shares

Mixed Investment 20%-60% Shares

Mixed Investment 40%-85% Shares

North America

Sterling Corporate Bond

Sterling High Yield

Sterling Strategic Bond

UK All Companies

UK Smaller Companies

The 10 Top Performing Fund Managers

Fund managers seldom outperform the market in the short term and almost never over the long term. Yet that doesn't mean you should just invest in index trackers or Exchange Traded Funds (ETFs). There is still a place for picking the best active investment fund managers. However the top performing investment fund managers historically won't outperform the market or their peers all of the time. The table in the last section of this article emphasises the impact on your returns of your misplaced loyalty to even the best fund managers. The key is to invest in the best funds when the investment environment suits them and to ditch them when it doesn't, in favour of their peers most likely to outperform. You should NEVER invest your money with a fund manager for the long term.

The table below shows the 10 top performing fund managers over the last five years. I analysed the returns of thousands of fund managers versus the level of risk they took with investors' money to arrive at the final table. The best investment fund managers do not gamble with investors' money, instead they invest it strategically to minimise any losses. The Sharpe Ratio is a measure of the level of excess return the fund manager earns for the extra risk he/she has taken. The higher the figure the better. You will notice there is no mention of Neil Woodford. Interestingly one of the funds is a tracker fund by Vanguard (with no human fund manager).

How to pick the best performing funds to invest in now

The key to successful investing is to pick the funds most likely to outperform their peers in the future. That is not the same as picking the funds or fund managers with the best performance over the last 5 or 10 years.

By way of example if you had picked the 10 best performing funds over 10 years
leading up to October 2011 (from the UK All Companies sector) and then invested in them over the next 5 years you'd have been in for a surprise. As the table below shows, over the next 5 years you would have been better off investing in alternative funds within the same sector.

So how can you choose the best funds to invest in right now? The world of fund management brainwashes investors into thinking that you have to buy and hold a fund manager or fund. Yet why should you? The evidence overwhelmingly shows that no fund manager outperforms in every market condition. The fact that a fund manager or fund might top a table of the best performing managers (or funds) over 5 years is just a coincidence of the timeframe used. Use another timeframe (as shown above) and they won't come anywhere near the top. This is true of every fund, even the most popular investment funds. Invesco Perpetual Income, shown above, is a perfect example of a fund that historically was run cautiously and full of defensive shares such as pharmaceutical companies. In an economic downturn these shares and funds do well (after all, people still buy medicines in a recession) yet they underperform when the economy recovers.

So if you can't rely on long term performance tables to pick funds that are more likely to perform well in the future then how can you do it?

The key to investing is to choose the best funds to invest in for the current environment and to use a process that screens out the noise and emotional headlines and focuses on the fundamentals. It's a very simple process that I explain in a short email series How to become a successful DIY investor. In the emails I show you:

• The most important investment lesson you will ever learn based on over 100 years of research and experience
• The simple and easy to use tool that will help you beat the market
• The investment process fund managers want to keep to themselves.
• How to know which funds to buy and which to sell, in minutes.

I have used the technique to help investors outperform the market and professional fund managers using only a few minutes a month, using 80-20 Investor. You can read their reviews of 80-20 Investor as well as see the performance in the widget at the foot of this article. I also successfully run £50,000 of my own money live on the site to show how simple it is. 80-20 Investor helps you to simply decide the funds to invest in via your existing fund platform. Find out more about how the service works and take advantage of a 30 day FREE trial.