Top 10 investment funds in 2022

Top 10 investment funds 2022

1. iShares S&P 500 Information Technology Sector UCITS ETF

2. Lyxor Nasdaq-100 UCITS ETF

3. iShares Global Clean Energy UCITS ETF

4. Lyxor Russell 1000 Growth UCITS ETF

5. L&G Cyber Security UCITS ETF

6. SPDR S&P UCITS ETF

7. Invesco US Consumer Discretionary Sector UCITS ETF

8. iShares MSCI USA SRI UCITS ETF

9. UBS ETF (IE) Factor MSCI USA Quality UCITS ETF

10. Amundi ETF S&P Global Luxury UCITS ETF

How to select investment products

When investing in index funds, you first need to complete some due diligence and take into careful consideration the risks and benefits of each fund.

Does the fund match the performance/income/growth that you require? Can you tolerate the levels of risk involved with that fund? Are the companies considered “ethical” if this is important to you? These are the types of questions you should be asking.

If you are uncertain about how to invest in funds that match your goals on your own, a list of the top-performing funds such as the one above may be useful to you. However, the list above is not exhaustive and you may wish to consider other funds too.  

Remember to always research the source of the information, and make sure it came from an accredited financial analyst or someone that you can trust would understand the markets well enough to give an unbiased and impartial view.

When it comes down to choosing a fund, the level of risk you can tolerate is an important factor to consider, as the higher the risk (generally) the higher the rate of expected growth and losses too. With a lower risk fund providing a slower growth rate, but potentially more reliable returns. Which of these options is preferential, is entirely up to you as an investor. 

With each fund you research, there should be an indication of the level of risk associated with it, so it’s important for you to decide in advance what your risk tolerance is, to speed up and clarify your decision making. Many funds are given a level of risk rating by independent firms, which may also wish to incorporate into your decision process. 

To make the process of choosing a fund easier, there are companies that offer investment accounts with a wide range of funds to choose from, such as stocks and shares isas, pension funds, general accounts, and funds for your children.   

Look at the fund’s history

How to invest in index funds

There are now several options when looking to invest your money into a fund. The three main ways you can invest are: 

Monthly investment plans

Monthly investment plans allow an investor to set up a direct debit that is automatically taken from their account and used to purchase more shares. The date and amount can often be chosen, and in most cases can be stopped when needed.

Consistency can be a major factor in building an investment portfolio, as the more consistently you can invest, the more shares you can acquire which can in some circumstances lead to more growth. It’s also more convenient than manually adding money into your account and purchasing shares yourself.

Of course, this is more practical if you know you have a steady monthly income and you can afford to invest each month. 

Manual payments

Setting up a direct debit is rarely a prerequisite of owning an investment fund, so the option to manually add money into an account and purchase shares as and when you would like is often available to you.

This way of investment is often preferable to people with varying monthly incomes that still want to build an investment portfolio.

What types of funds are there?

Whilst there are several types of collective investments available, they will all fall within two categories, registered investment companies, and private funds.

Registered investment companies – US investment funds are registered with SEC (securities and exchange commission) and are required to report financial conditions and policies. When registered with SEC, they will be regulated by the Investment Company Act of 1940. These companies are openly available for retail clients to invest in.

UK investment companies are authorised and regulated by the Financial Conduct Authority (FCA). 

Private funds – In contrast to registered investment companies, private funds are closed off to retail investors and members of the public. Two common types of private funds are hedge funds and private equity funds.

Within registered and private funds, are mutual funds, closed-end funds, and unit investment trusts. 

Mutual funds

These are a collaboration of many individual investors that have their capital pooled together, (and it’s then used to invest in a mixture of assets, such as bonds, individual stocks, and other securities. These funds are managed by fund managers who aim to increase the value of the fund by purchasing assets they feel will either increase in value (capital growth) or will produce income (by way of dividends). They will also choose to sell any assets they feel are underperforming.

For our list of best funds to invest in, we are focussing on ETFs, as they offer the most liquidity and easiest access. 

Closed-end funds

Unit Investment trusts

ETFs (exchange-traded funds)

Electronically traded funds are high liquidity securities that track many different types of assets, including commodities and indices. They can contain stocks, bonds, commodities, or a mixture of all of these. ETFs are easily purchased and traded on exchanges. 

The main difference between an ETF and a mutual fund is that they are priced on real-time data, which means they can be sold or purchased throughout the trading day rather than only once the market has closed, as is the case with mutual funds.     

How many funds should you invest in?

The number of funds any one person should own comes down to their own level of experience as an investor. For some investors, owning a single fund can adequately provide the income and growth required, providing it is well diversified to reduce risk. However, for more experienced investors that want to diversify and grow their portfolio, anywhere up to 15 individual funds could be considered “manageable”. 

Do investment funds pay dividends?

Dividends can be paid out from stocks you own in a fund. It is common for the dividend to be paid out by the company to the fund manager, who will then reinvest the dividend amount into the fund you own, buying more shares of the companies held in it, helping it to grow through compounding. This is called an accumulation fund because the dividends accumulate inside the fund and are reflected in its price, this will be displayed in the fund’s name as “Acc”.

Fund managers can also pay out paid dividends to the owners of the fund through cash payments. The dividends paid are paid after fees have been calculated and deducted. This is why it is often advantageous to seek funds with high yields and low expense ratios if dividend income is an investment goal of yours. Funds that payout the dividend are called distribution funds because they distribute dividends to the funds, this will be displayed in the fund’s name as “Dist”.

Not all funds include stocks that pay dividends. The easiest way to determine if the funds you are interested in do, is to check the fund factsheet which will tell you how and when dividend payments (if any) will be paid.  

What are passive investment funds?

What sets a passive fund apart from a traditional fund, is that it tracks a market index. Tracking an index means that an active fund manager is no longer required in the decision-making process, and so passive funds often have smaller fees associated with them. This is one of the main benefits of investing in funds, they allow you to achieve benchmark performance of indexes like the S&P 500 and FTSE 100 at a relatively low cost.

The most common types of passive funds are ETFs (exchange-traded funds) and indices, as these track market indices/indexes. These funds are referred to as “Tracker funds”.

As with any investment type, passive funds have a mixture of benefits and drawbacks to them. The main benefit is the ease at which investments are chosen, the fund tracks the index and very little human interaction is required. This, however, is also a passive fund’s biggest drawback, as there is a possibility that a fund made up of only highly performing stocks can lack diversity.

Should something negative occur within a certain sector and your fund is made up of stocks primarily coming from the affected sector, it could have a devastating effect on the value of your portfolio. 

Investment fund tax

Funds can be subject to taxation in the form of capital gains tax and dividend taxes if your fund holds shares that pay them.

Tax is paid on profits made from the fund or from dividends, however, the amount of tax you pay can be offset by any losses. For example, if you make a £5,000 profit from capital gains, but have £1,000 capital losses, you will only pay tax on that financial year’s net profit of £4,000.

You may still end up owing capital gains tax each year even without selling the fund. Active and passive funds frequently change the stocks that are held within them, and if a stock is sold and realises a profit (which is often distributed to the investors that own the fund), it will be subject to capital gains tax. This is often referred to as a capital gains dividend.  

Can investment funds go bust?

Funds are undoubtedly a simple way to invest your capital when compared to investing in individual stocks, but what kind of risk do they come with?

The good news is the core principle of many funds is diversification. By investing within a heavily diversified fund, you are minimising your risk by purchasing many shares of different stocks through a variety of sectors. For a fund to go truly “bust” would require every stock within that fund to go completely bankrupt, which whilst not entirely impossible, is very unlikely.

When compared to investing in a single stock where it is entirely possible for a catastrophic event to cause major harm to an individual stock’s value, a fund is somewhat protected from this by offsetting one stock’s loss against another’s profit.

For example, if the value of one stock was to decrease by 20% over the course of a year, and two other stocks with the same allocation in your fund were to each increase in value by 10%, both their individual increase in value would offset the harm caused by the 20% value loss of the value losing stock. The value of individual stocks fluctuates throughout the day, so were you to watch the price movements of each stock in your fund, you would see the effect of one stocks’ profit offsetting the losses of others.