As the upcoming ISA deadline looms, those who wish to grow their capital over the long run might view the recent sell-off in growth stocks as a buying opportunity.
Although global growth stocks have taken a beating in recent months, they have still outperformed that of the broader index for the past two decades.
Performance of MSCI ACWI Growth vs MSCI ACWI over 20yrs
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Source: FE Analytics
For investors who are seeking a fund to grow their savings in an ISA, Trustnet asked experts for the funds they recommend for capital growth over the long run.
Ryan Hughes, head of investment research at AJ Bell, highlighted Abrdn Global Smaller Companies.
“For long-term investors, exposure to smaller companies can give a fantastic boost to performance and the team at abrdn have significant experience of the smaller-company universe,” he said.
Although the approach has a bias towards growth companies and has taken a hit in recent months, it could prove to be an interesting entry point for patient investors, Hughes said.
One concern may be the relative inexperience of manager Kirsty Desson, who took the helm two years ago, but Hughes said she has worked on the fund for a decade and is backed by an experienced team that operates an investment process that has been honed over many years.
He said: “The result is a fund that is pretty concentrated at 45 stocks which, given the global opportunity set, shows a manager prepared to be very different to the index.
“While the fund will therefore likely have a performance profile that is different to the index, in smaller companies finding the winners and backing them over a time has proven to be a fantastic long-term strategy.”
Performance of fund over 10yrs
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Source: FE Analytics
Ben Yearsley, director at Fairview Investing, picked the European Opportunities Trust, managed by Devon Equity Management’s Alexander Darwall.
He said: “This is a simple trust really. Darwall is just looking for the best long-term growth companies that can prosper regardless of the wider economic environment.
“The top 10 holdings are pretty concentrated at about 70% of the trust’s total value so it is high risk in that regard. Buy it and tuck it away for the long term.”
The trust has fallen out of favour over the past few years, largely due to the large bet that the manager made on German payment processor and financial services provider Wirecard, which went bust after a series of accounting scandals.
Yearsley said: “However, although that was painful for shareholders, interestingly the trust still made money on Wirecard over the length of the holding and crucially the long-term returns are still excellent in my view.”
He noted the trust’s 12% discount to net-asset-value (NAV) as a result of “disinterest from the market”.
Performance of trust since inception
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Source: FE Analytics
Dzmitry Lipski, head of funds research at interactive investor, put forward the Montanaro Better World fund, managed by Charles Montanaro and Mark Rogers.
This fund invests in small and mid-cap companies that aim to help solve the world’s major challenges by supporting the United Nations Sustainable Development Goals.
He said the “highly regarded” managers focus on six impact themes – environmental protection, green economy, healthcare, innovative technology, nutrition and well-being.
“Following a strict three-stage process the managers aim to establish if a company is making a good impact,” Lipski explained. “This is done through a variety of screening tools and meeting company management regularly.
“The outcome is a concentrated portfolio of around 50 quality-growth companies, benchmarked against the MSCI World SMID index.
“Historically mid- and small-cap funds have outperformed their larger-cap counterparts over the longer term, but they’re generally considered to be more riskier investments, so should be used mainly for satellite allocation in a global well-diversified portfolio.”
Performance of fund since inception
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Source: FE Analytics
Ajay Vaid, investment research analyst at Square Mile Investment Consulting and Research, went with Baillie Gifford Positive Change for his long-term growth fund pick.
Despite its relatively short track record, having been launched in January 2017, Vaid said it displays many qualities for which Baillie Gifford as a firm is highly regarded, namely the house style of growth investing and a collaborative team-based approach.
However, he noted that this growth bias does mean the fund will face headwinds when value or cyclical areas of the market outperform.
“Baillie Gifford has dedicated significant resource to this product,” he said. “It has a well-defined and distinctive investment process and places a strong emphasis on both delivering returns and providing a positive impact over the long run.
“We have awarded the Baillie Gifford Positive Change fund a Square Mile Responsible A rating to reflect our conviction in the fund's managers and our belief that this is a highly credible option for investors seeking to grow capital over the long term whilst helping to address a range of social and environmental issues.”
Performance of fund since inception
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Source: FE Analytics
James Sullivan, head of partnerships at Tyndall Investment Management, singled out the Jupiter Ecology fund as another for sustainable investors looking to grow their cash over the long run.
"Jupiter Ecology is, in many ways, the godfather of [environmental, social and governance] ESG investing,” he said. “It was the first authorised green unit trust to be launched in the UK in 1988, and what makes it stand out from the crowd is that it adopts a 'valuation matters' approach to sustainable investing.
“It is a fund that is cognizant of its benchmark but is equally not afraid to step back from the highly rated stocks that trade more on price momentum and speculation than they do earnings.”
He said the fund’s investments in clean energy and sustainable agriculture offers “terrific” long-term growth potential from structural tailwinds.
"Around half the portfolio is exposed to what they call ‘accelerators’ – companies that have proven and scalable solutions, where projected sales growth is above GDP paired with commensurate earnings growth and free cash flow generation,” he said.
"In all, it is a very exciting portfolio that straddles both growth and sustainable genres, offering great performance potential paired with diversification of theme that is hard to replicate elsewhere."
Performance of fund over 10yrs
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Source: FE Analytics