Active and Passive Funds to Invest in UK Equities

Want to invest in UK equities? Once you have decided on the asset allocation, now it is time to choose which strategy is best to gain exposure. We explore the options

Holly Cook 18 June, 2015 | 9:27AM
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All this week we are running a Guide to Active and Passive Investing to help you, the investor, make smart choices for your portfolio.

 

 

 

 

Holly Cook: If you are looking for a core holding that's going to give you exposure to the U.K. equity market for your portfolio, there are many, many investment options for you. I've got a couple of passive strategies to go through today and also a couple of actively managed strategies, so we can cover all-bases.

So first off, an Exchange Traded Fund or ETF, the SPDR FTSE UK All Share ETF (FTAL) has got three stars from Morningstar, and this gives you a really broad exposure to the U.K. equity market. It's not the cheapest ETF, but it almost is.

It charges an ongoing charge of 0.2% and it carries a lowest total holding cost, and these are some of the advantages of Exchange Traded Funds. It's actually got an annualised three year return of 15%, so minus the ongoing charge of 0.2% from that, get an idea of what you would have got over the last three years.

Another passive option is a tracker. It's not traded on the exchange like an ETF, it's an open-ended fund, but it's still a low cost option and this one is the Vanguard FTSE U.K. All Share Index. It's got a Silver Rating from Morningstar analysts, and part of the reason for that, is that in keeping with Vanguard's general company ethos, it has continued to deliver the benchmarked return at the lowest cost possible. It charges just 0.08%, so you can subtract that from the annualised three year return of 13% that it's achieved over the last three years.

Let's look at some actively managed options now. The first is an OEIC or Open-End Investment Company. JO Hambro UK Opportunities also has a Silver Rating from Morningstar analyst. Its lead manager John Wood has been in charge of the fund for almost a decade. So that's a great tenure to have from a manager.

He has proven that he is able to do a good job of protecting shareholder's capital through down markets. But the fund does tend to lag a little in certain rallying markets. However, it's achieved annualised returns over the last three years of almost 14%, minus the ongoing charge for the retail share class of 0.81%.

Last but not least, and the final actively managed fund, this is actually an investment trust, so it trades on the London Stock Exchange and it’s the City of London Investment Trust (CTY). Now this has a Gold Rating from Morningstar analyst, the highest metal rating that you can get.

Job Curtis, the manager has been at the helm for well over 20 years, which really is exemplary and he is naturally a cautious investor and that has really helped to serve shareholders well over the past few decades. It's achieved three year annualized return of 17%, minus an ongoing charge of 0.44%, leave shareholder in good hands.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites