Recognising that investors are often keen to deploy their hard earned savings in the market but don’t know where to invest, AJ Bell fund expert Ryan Hughes has pulled together a list of eight funds that he thinks will do well in 2021.

He’s separated them into four categories, thereby appealing to investors either with different risk appetites or specific investment needs.

Cautious Investment Trust

Personal Assets (PNL) £452.50

Premium to NAV: 1.5%

5-year annualised return: 7.1%

The defensive nature of Personal Assets’ (PNL) approach sits well for those investors who worry that markets remain at or close to all-time highs and fear the return of inflation.

Manager Sebastian Lyon takes a naturally cautious approach and has some built-in inflation proofing with 10% exposure to gold and a further 28% in index-linked bonds.

Add in 40% in high quality equities that possess the ability to compound returns and you end up with an appealing portfolio, not just for cautious investors but also those who want to add diversification to their portfolio. The approach of ‘winning by not losing’ is one that is often forgotten by many investors.

Cautious Fund

Artemis Corporate Bond (BKPWGV3)

Trailing returns year to date: 14%

With yields on cash being almost non-existent, some cautious investors may be looking to obtain a little extra return. Yields on corporate bonds may be low but they do offer a step up over cash and therefore still have a role to play for investors.

And with some companies likely to struggle through 2021 and potentially go bust, taking an active approach to the asset class with a manager prepared to invest away from the benchmark could be beneficial.

Artemis Corporate Bond brings just that with a pragmatic manager in Stephen Snowden who is comfortable standing out from the crowd and being genuinely active. The fund is only just over a year old but has grown to nearly £500 million, helped by a low fee of 0.4%.

Balanced Investment Trust 

Fidelity Special Values (FSV) 235.23p

Discount to NAV: 1.4%

5-year annualised return: 5.5%

The UK market is at an interesting inflection point as we run into 2021. It has lagged global markets for many years as the structure of the market with a large allocation to old economies such as oil and a large financials weighting has hampered returns.

With the conclusion of Brexit finally here, there is a chance that investors once again begin to look at UK equities and for that discount to close.

Fidelity Special Values, managed by Alex Wright, could be well-placed to capitalise on this shift with his focus on solid but out of favour companies.

The burst of performance seen late this year when news of the vaccine was announced shows how much performance potential is in these stocks and this is helped by the 18% gearing Wright has currently employed to take advantage of price weakness.

Another plus is the imminent cut of fees on the trust, taking c0.2% off the ongoing charges figure in the New Year.

Balanced Fund

Threadneedle UK Equity Income (B8169Q1)

5-year annualised return: 5.6%

Many investors have been underweight core UK equities for a while but, with a potentially improving picture, boosting domestic exposure to take advantage of the discount to global equities may be attractive.

The Threadneedle UK Equity Income fund managed by Richard Colwell is proof that value can be added despite being significantly exposed to larger companies.

While this is an income focused fund, it is very much managed on a total return basis and makes for a solid core UK equity holding.

The approach is best described as gently contrarian and Colwell is happy taking active positions with big underweights currently in financials, miners and oil stocks, despite their potentially higher yields.

Adventurous Investment Trust

Standard Life UK Smaller Companies (SLS)

Discount to NAV: 5.1%

5-year annualised return: 11.7%

With a potential rebound in UK equities on the card, gaining exposure to some of the fastest growing companies in the UK could be a potential winner in 2021.

The smaller-companies team at Aberdeen Standard led by the highly experienced Harry Nimmo is very strong and the trust has also recently appointed Abby Glennie as co-manager.

The closed ended structure is a good way to gain exposure to smaller companies and with assets of around £600 million the trust is a nice size to be able to look across the market cap spectrum.

Its approach has a strong preference for growth companies and is very comfortable looking away from the index, which is entirely appropriate in the smaller-companies space.

With high active share (the portfolio is very different from the benchmark index), sensible costs and an outstanding track record, this trust is a great example of the benefit of genuinely active management.

Adventurous Fund

Liontrust Sustainable Future Global Growth (3003006)

5-year annualised return: 20.1%

The growth in interest in ESG investing has been one of the big stories of 2020 and it has become firmly embedded and is here to stay.

The team at Liontrust have been investing with a sustainable approach for many years and have a great understanding of the way that companies are adapting to the importance of ESG along with the way that the behaviour of people is also changing.

The fund has a strong growth bias with large allocations to technology and healthcare and therefore naturally has a strong allocation to the US.

With valuations potentially looking a bit rich in some cases, this is in the adventurous camp but for investors that want exposure to sustainable themes, the Liontrust team is up there among the best.

Income seekers Investment Trust 

City of London (CTY) 364.46p

Premium to NAV: 2.9%

5-year annualised return: 3.5%

Investing for income was a nightmare strategy in 2020 with so many companies cutting dividends due to the pandemic.

With a vaccine now starting to be rolled out there is hope that some form of normality can resume, and companies are certainly looking to start paying dividends again, if they haven’t already resumed in recent months.

City of London has for many years been one of the standout UK equity income trusts with manager Job Curtis in place since 1991.

The trust has a track record of increasing its dividends every year for over 50 years and intends to maintain this trend, making use of its income reserve.

Even after the recent rally, the trust is yielding over 5% with holdings in UK equities such as Unilever (ULVR), GlaxoSmithKline (GSK) and Reckitt Benckiser (RB.). With fees at just 0.36% per year, this is a good option for investors either wanting to take an income or simply want exposure to UK equities and reinvest the income to generate future growth.

Income seekers Fund

Jupiter Japan Income (B6QC0Z6)

5-year annualised return: 13.7%

Japan and income are not always two investment themes that go together but in recent years Japanese companies have evolved to become highly profitable and consequently have significant amounts of cash on their balance sheets.

This is translating into dividends with company management showing more understanding of the importance of dividends to overseas investors.

Jupiter Japan Income actively seeks out those high-quality companies that are generating profits and have a willingness to return that to shareholders as dividends.

While the yield may seem low compared to the UK at around 2.4%, the growth of this dividend is key and with low levels of debts in Japanese companies, the potential for income growth in the coming years is very strong.

FOOTNOTE: Data in this article sourced from Morningstar, Winterflood

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