Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
What is the AJ Bell Favourite funds list?
The AJ Bell Favourite funds list is designed to lighten your research load. There are thousands of funds out there – so we’ve narrowed the field by selecting a high-quality shortlist of funds we believe can deliver their objectives over the long term. To make the list, each fund needs to pass our robust, independent selection process.
What have we changed?
We keep our Favourite funds list under constant review to ensure we have the highest conviction in the funds on the list. That includes researching the market for new funds which we believe have better potential to achieve their objectives.
As a result of this work, we have recently added the Lightman European fund to bring greater choice to investors.
Why have we added this fund?
The Lightman European fund is a European equity fund that looks to deliver capital growth over the long term (five years and more) by investing in companies listed and domiciled in Europe – excluding the UK.
Burnett is a 'value' manager, i.e. he identifies underpriced companies which have the potential to grow margins and earnings. This philosophy is built on the empirical research undertaken by legendary investor Benjamin Graham, known as the 'father of value investing'.
The fund is able to choose from any European-listed equity with a daily trading value of over €4m – around 600 stocks in total. Using various valuation screens to exclude overpriced companies, they then filter the investable universe down to a more manageable 200–300 stocks.
The team then undertake qualitative research to understand not just the specific companies, but the main drivers and dynamics of the industries in which they operate. Next, they directly contact those companies with a positive industry dynamic to understand more about their strategy for improvement. For a company to be considered for inclusion in the portfolio, it must have potential for a clear improvement in revenue, margins and cash flow over the next two years – while also having the security of a strong or strongly improving balance sheet.
The resulting portfolio typically consists of 40–50 stocks. Given the contrarian nature of the fund’s approach, it will be positioned and perform differently to the index. Each stock position will typically be limited to 5%, with the exact size determined by a combination of investment potential, liquidity and risk metrics. The sector allocation will be within 15% of the benchmark, giving the fund significant flexibility to invest in a high-conviction manner.