The end of the tax year is now just a couple of weeks away so if you want to make use of any remaining ISA allowance your window to do so is rapidly closing.

In this article the Shares team has put its collective heads together to identify a quintet of funds which we think are worthy of inclusion as part of a diversified portfolio. Some of these names may already be familiar but others are likely to be further below most investors’ radars.

Each of these choices offers something different, so depending on your goals, appetite for risk and whether you want to prioritise income or growth with your investing there should be something for you. Read on to discover more.

Fundsmith Equity (B41YBW7) 700p

Assets: £22.7 billion

GREAT FOR HIGH-QUALITY GROWTH

For investors wanting global exposure to a concentrated group of high-quality businesses generating sustainably-high returns on capital, the Terry Smith-steered Fundsmith Equity Fund (B41YBW7) is an obvious port of call.

Smith’s approach is to seek out superior businesses, buy them at an attractive valuation – which doesn’t have to be rock-bottom but can be around fair value, which is more likely the case for high-quality companies – and literally do nothing but hold onto them in perpetuity.

Needless to say, there aren’t that many genuinely world-class companies to invest in, and there are currently just 28 stocks in the portfolio with an average market cap of over £100 billion.

The average age of the companies in the fund is over 100 years, and Smith takes great pride in the fact they have much higher ROCE (returns on capital employed), margins, cash conversion and interest cover than either S&P 500 or the FTSE 100 index.

‘Consistently high returns on capital are one sign we look for when seeking companies to invest in,’ says Smith.

‘Another is a source of growth — high returns are not much use if the business is not able to grow and deploy more capital at these high rates.’

In 2024, the average ROCE of the portfolio companies was 32% against half that for the two main indices, while the weighted average free cash flow (the cash the companies generate after paying for everything except the dividend) grew by 14%.

Admittedly, the fund has underperformed the market over the last three years, because although it owned Meta Platforms (META:NASDAQ) and Microsoft (MSFT) it didn’t own all the so-called ‘Magnificent Seven’ technology stocks, but by the same token it hasn’t suffered the same level of volatility.

As Smith says, the object of the fund is to produce ‘a high likelihood of a satisfactory return rather than the chance of a spectacular return, which could be spectacularly good or spectacularly bad’. [IC]

DISCLAIMER: Ian Conway has a personal investment in Fundsmith Equity

Fidelity Special Values (FSV) 326.5p

Market cap: £1.06 billion

Investors braced for further uncertainty and stock market volatility in the years ahead should put their faith in a fund with a formidable long-run track record and a contrarian, value-focused investment philosophy that’s proven to work in all weathers. Step forward Fidelity Special Values (FSV), whose winning strategy is available to investors on a 5.5% discount to net asset value (NAV) and with ongoing charges a reasonable 0.7%.

Managed by Alex Wright and Jonathan Winton, Fidelity Special Values is a diversified portfolio of unloved yet high-quality companies spanning the cap spectrum ─ top 10 holdings at last count spanned tobacco firm Imperial Brands (IMB), banking groups Standard Chartered (STAN) and NatWest (NWG), as well as geotechnical contractor Keller (KLR) and consumer goods group Reckitt Benckiser (RKT).

The £1.06 billion cap trust aims to generate long-term capital growth by investing primarily in UK-listed companies Wright believes are both unloved and entering a period of positive change. Supported by Fidelity’s deep bench of analysts, Wright and Winton pursue a contrarian, value-oriented stockpicking approach with a focus on downside protection. They seek out unloved companies that are entering a period of positive change that the market has not yet recognised and the consistent application of this winning approach has enabled the fund to perform well in a range of market conditions.

Fidelity Special Values is the best share price total return performer in the six-strong UK All Companies sector over the last one, five and 10 years, up more than 130% over the latter timeframe.

Despite their improved performance over recent years, Wright observes UK shares still look cheap relative to other markets and reasonable on an absolute basis and sees ‘good opportunities for attractive returns from UK stocks on a three-to-five-year view’.

Thanks to the focus on buying companies on cheap valuations, takeover activity typically benefits performance. And while the focus is on long-term capital growth rather than income generation, dividends have historically formed an important part of the trust’s total shareholder return. Fidelity Special Values is one of the AIC’s ‘Next Generation’ dividend heroes; the inflation-beating 8.4% increase in the total dividend to 9.54p for the year to August 2024 representing its 15th consecutive year of growth in the shareholder reward. [JC]

DISCLAIMER: James Crux has a personal investment in Fidelity Special Values.

Latitude Global Fund (BMT7RH1) 172p

Assets: £436 million

GREAT FOR FOCUSED GLOBAL EXPOSURE

The Freddie Lait managed Latitude Global Fund (FUND:BMT7RH1) follows a focused, style agnostic approach to investing in high quality, large liquid global companies.

Lait only invests in businesses when the market offers him a significant margin of safety and where he believes a company can grow intrinsic value per share on a sustainable basis for many years.

Reflecting this focus, growth in earnings per share for the companies in the portfolio has averaged around 16% a year, a good proxy for growth in intrinsic values.

Meanwhile, the portfolio’s average PE (price to earnings) ratio is around 14.5 times, which Lait believes is undemanding versus the growth and quality of the companies in the fund and lower than the market rating.

Since inception in September 2020 the fund has delivered an absolute return of 81%, which is equivalent to 16% a year, outperforming the return of the FTSE All World index.

The fund demonstrated its all-weather credentials in 2022, generating a small positive return against a 17.7% fall in the FTSE All World index.

In short, the fund offers exposure to companies which have the potential to grow faster than average but trade on lower multiples.

Lait has warned of the investment risks emanating from high levels of market concentration in mega-cap technology and elevated valuations, especially in growth areas of the market.

The fund has no exposure to these risks which means it has good potential to deliver strong relative and absolute returns should these risks materialise.

The fund has an annual management fee of 0.75% and an ongoing charge of 1.18%. In January the company negotiated better terms from its service providers and passed on the benefits to clients which lowered the ongoing charge by 3.5 basis points. [MG]

Murray International (MYI) 268.5p

Market cap: £1.6 billion 

GREAT FOR VALUE INVESTING

Murray International (MYI) would suit a cautious investor seeking long-term growth in dividends and capital ahead of inflation. This global equity income trust’s defensive approach and value bias means it has a role to play as a portfolio diversifier and looks attractive on a 4.4% dividend yield and a 6.3% discount to net asset value (NAV).

Murray International is also about to be granted Association of Investment Companies (AIC) ‘Dividend Hero’ status, having raised the total dividend for 2024 by 2.6% to 11.8p for a 20th consecutive year of rising payouts, which should help with marketing the trust to new investors.

Managed by no nonsense duo Martin Connaghan and Samantha Fitzpatrick, Murray International’s distinctive style and avoidance of frothily valued growth stocks means it brings something different to the table and performance should shine again if equity market returns become less concentrated. A diversified portfolio of quality companies, the managers’ focus on cash-generative firms with durable business models, wide economic moats, strong management teams and ESG credentials is reassuring at this time of geopolitical uncertainty.

Admittedly, results (6 March) for the year to December 2024 were underwhelming with NAV total returns of 8.1% lagging the 19.8% increase in the FTSE All World Index. However, this delivered real growth ahead of UK inflation, while the underperformance reflected the deliberate absence of any ‘Magnificent 7’ names, not to mention an overweight to Latin America, and this lack of Mag 7 exposure has turned from headwind to tailwind given a recent correction in US mega caps.

Diversified global portfolio with a defensive bias

Portfolio Analysis

The managers have prudently taken profits on strong performers such as Broadcom (AVGO:NASDAQ) and topped up positions in the likes of Diageo (DGE) and Wal-Mart de Mexico, while new positions include luxury car brand Mercedes-Benz (MBG:ETR), housebuilder Taylor Wimpey (TW.) and Coca-Cola (KO:NYSE). Cautious of the geopolitical landscape in 2025, the managers will ensure Murray’s portfolio remains ‘well diversified across regions and sectors and resilient enough to generate income and capital growth whilst endeavouring to preserve capital during periods of market weakness.’ [JC]

VanEck Morningstar Developed Markets Dividend Leaders ETF (TDGB) £36.17

Market cap: £1.45 billion 

For investors wanting global exposure to high dividend-paying stocks, this fund is an ideal solution as it seeks out the top 100 income plays around the world at very low cost (just a 0.38% ongoing annual fee).

Companies are selected not just on the size of their yield, but on its sustainability and the potential for it to grow over time.

Dividend resilience is a particular focus, with preference given to companies which have consistently paid dividends and where earnings appear to comfortably cover future dividends.

The fund is diversified across countries and sectors, and for those who like an ethical bias it also screens for ESG (environmental, social and governance) risks and excludes companies making or selling controversial products.

Unlike most global products, the US market only makes up around 20% of the portfolio, with France making up 12.7% and the UK, Italy and Canada around 8% each.

The top 10 holdings include financials such as HSBC (HSBA) and Intesa SanPaolo (ISP:BIT), energy stocks such as Chevron (CVX:NYSE) and TotalEnergies (TTE:EPA), and health care stocks such as Prizer (PFE:NYSE), Roche (ROG:SWX) and Sanofi (SAN:EPA).

Over the last three years the fund has returned 15.8% (2022), 11.8% (2023) and 16% (2024), and in the first two months of this year it has already notched up 10% gains.

As of the end of February, the fund had a trailing 12-month yield of 3.8%, and dividends are paid quarterly, making it attractive to investors looking for a regular source of income. [IC]

Van Eck Dividend Leaders

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