It is useful for investors who are not comfortable committing a large lump sum but who want to make their money work harder for them than it would do in a cash savings account.
Putting money away on a monthly basis, or "drip-feeding" savings into a portfolio, is also one of the best options for gaining exposure to riskier but higher-growth areas of the market.
One of the main problems with investing a single lump sum is related to market timing: anyone who does this runs the risk of buying when valuations are expensive and selling when they are cheap.
Investing at regular intervals – say every month – means fewer shares are bought when markets are at extreme highs and lows. This negates the issue of market timing and dampens the impact of crashes, such as the credit crunch in 2008.
Here are five funds that experts say are perfect for drip-feeding money into:
RIT Capital Partners
Bestinvest’s Jason Hollands (pictured below) highlights the RIT Capital Partners investment trust as a good all-round choice.
| Name | RIT Capital Partners |
|---|---|
| Size | £1.8bn |
| Discount | 8.5% |
| Gearing | 8% |
| Ongoing charges |
1.32% |
| FE Crown Rating |
1 |
Source: FE Analytics
"Drip-feeding is a sensible strategy for any investor because it is nigh on impossible to second-guess market movements."
"For investors with a long-term horizon, I would choose RIT Capital Partners as a one-stop shop."
"The fund holds a diverse range of private equity firms, global listed equity and third party vehicles such as hedge funds. It is a useful portfolio that gives you a good spread of exposure."
RIT Capital Partners was launched in 1987. According to FE Analytics, the trust has returned 232.12 per cent over the last decade.
This is more than managed by the IT Global Growth sector and its benchmark – the FTSE All Share – over the period.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
That means that if an investor had put £1,000 into the trust 10 years ago and then topped this up with £100 every month, they would have £7,575 more than they originally invested.
However, it is worth noting the fund has underperformed against its benchmark over one, three and five years.
Newton Emerging Income
Chris Spear (pictured), managing director of Spear Financial, also thinks monthly installments are well suited to the more aggressive areas of the market. He is a fan of Newton Emerging Income.
"I always tend to lean towards income because income works," he said.
"I like Newton Emerging Income. Newton has shown the strategy works, with the success of its Asia Pacific Income fund. It is obviously quite a risky area to invest in, but by drip-feeding your savings you are softening the blow in a down-market."
"I had a client who came to me with over £100,000 and said he wanted to put it all into emerging markets."
"Obviously, putting all of that in a lump sum would be very dangerous, so we met half-way and agreed he would invest via regular installments. One of the funds I chose was the Newton Emerging Income fund."
| Name | Newton Emerging Income |
|---|---|
| Size | £175.4m |
| Min. Inv | £1,000 |
| TER | 1.8% |
| Yield | 3.44% |
| Manager | Jason Pidcock, Sophie Whitbread |
| FE Crown Rating | n/a |
Source: FE Analytics
Newton Emerging Income was launched in October 2012 on the back of the success of Newton Asian Income.
The fund currently has £175.4m worth of assets under management and requires a minimum top-up of £250.
Performance of fund since launch vs sector and index
Source: FE Analytics
Although the fund has not been running for very long, since launch it has returned 16.42 per cent compared with 12.02 and 14.82 per cent from its IMA Global Emerging Markets sector and MSCI All World benchmark respectively.
It is yielding 3.44 per cent.
JPM Emerging Markets Income
Ben Willis (pictured), head of research at Whitechurch, also likes the emerging market income theme, but prefers JPM Emerging Markets Income.
"Drip-feeding is generally quite a good way of investing in more volatile regions or sectors."
"It can be a very useful strategy when you want exposure to more speculative areas of the market because of the pound-cost averaging."
"So if investors want exposure to emerging markets, Asia Pacific or even European equities – if they feel they will do well over the long run – it’s a very good approach," Willis said.
"A fund that is good for drip-feeding is JPM Emerging Market Income, as it is a low-Beta defensive play. And by topping up your initial investment, you are taking out a further element of risk."
| Name | JPM Emerging Markets Income |
|---|---|
| Size | £1.1bn |
| Min. Inv | £1,000 |
| TER | 1.68% |
| Yield | 3.38% |
| Manager | Richard Titherington Omar Negyal |
| FE Crown Rating | n/a |
Source: FE Analytics
JPM Emerging Markets Income – like Newton Emerging Income – was launched last year.
The fund has underperformed against its benchmark, the MSCI Emerging Markets index, by around 1 percentage point since launch, but has outperformed its peers.
Performance of fund since launch vs sector and index
Source: FE Analytics
The fund is run by Richard Titherington, who is chief investment officer and head of the emerging markets equity team at JP Morgan.
The fund’s minimum investment is £1,000 and the minimum top-up is £100. The JPM Emerging Markets Income portfolio is currently yielding an attractive 3.38 per cent on top of capital growth.
Templeton Frontier Markets
Hollands says a monthly income plan is also particularly useful when investors want exposure to under-researched, and therefore more racy, areas of the market.
"If you wanted to add more risk and therefore volatility to your portfolio, a fund that could potentially give you very high returns is Templeton Frontier Markets. Drip-feeding your investments into highly volatile funds makes a lot of sense in my opinion," he said.
| Name | Templeton Frontier Markets |
|---|---|
| Size | $1.2bn |
| Min. Inv | £5,000 |
| TER | 2.58 per cent |
| Manager | Dr Mark Mobius |
| FE Crown Rating | 4 |
Source: FE Analytics
Templeton Frontier Markets requires a minimum initial investment of £5,000 and a minimum top-up of £1,000.
Since the fund’s launch in October 2010 it has returned more than 100 per cent while the MSCI Frontier Markets index has lost 2.09 per cent.
Performance of fund since launch vs index
Source: FE Analytics
JPM Natural Resources
Chelsea Financials’ Darius McDermott (pictured) says that drip-feeding is the best way to gain exposure to commodities as he thinks that although they have had a tough time recently, they will inevitably prove to be profitable.
"An area which is more volatile – and has taken a hammering recently – is natural resources such as gold and other commodities.""I would go for something like JPM Natural Resources; however, even if you are optimistic on the sector, you want to be reducing the risk a bit."
"By drip-feeding you are getting that pound/cost averaging, which mitigates some of the risk."
JPM Natural Resources was launched in 1971 and has been managed by Neil Gregson since January 2012.
| Name | JPM Natural Resources |
|---|---|
| Size | £1.5bn |
| Min. Inv | £1,000 |
| TER | 1.68 |
| Manager | Neil Gregson |
| FE Crown Rating | 3 |
Source: FE Analytics
The fund has lost money over the last one, three and five years and has underperformed against its HSBC Gold, Mining and Energy benchmark over this time.
However, the fund’s longer-term track record is more appealing. Over 10 years, it has returned 365.53 per cent while its benchmark is up 300.96 per cent.
Performance of fund vs index over 10yrs
Source: FE Analytics
If someone had put £1,000 into the fund 10 years ago and topped this up with £100 every month they would have made £10,574.27 more than they originally invested.
However, they would have made slightly more money if they had invested the same amount in the HSBC Gold Mining & Energy index over that time.