Some of the best and worst major funds for 2024 who’s fortunes could change.

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While we are well into 2024 now, it’s not too late to look back at 2023 and analyse fund performance. Here, I look at three funds that underperformed the US last year and could potentially generate better returns this year, as well as two funds that are overhyped and could be due a correction this year. 

Essentially, UK Equity income funds could offer an attractive alternative to US markets that have been driven by the hype around AI.

While January saw US markets climb to new highs, the Federal Reserve’s cautious stance on interest rates sent them tumbling on the last day of the month and with tech giants like Microsoft and Alphabet missing earnings expectations, investors are now wondering: where to next?

The undervalued, under-appreciated world of UK equity income

Despite lagging their US and European counterparts, UK equities and equity indices offer several compelling reasons to consider investing, not least their enticing dividends.
The FTSE 100 boasts a 3.80% dividend yield, compared to just 1.47% for the S&P 500.  Companies like Vodafone, BATS, and Phoenix have even juicier yields, exceeding 9.0%.

And it’s not just high-yielders that look attractive.  Shell, for example, offers a 4.18% yield, and just today it announced a $3.50 billion share buyback program, creating a lucrative combination for stockholders.

Hidden value awaits

UK equities are seen as being undervalued, with many stocks ripe for takeovers by private equity firms and cash-rich overseas peers.
The rallies in the stock prices of Marks and Spencer and Rolls-Royce show just how this value can be unlocked by proactive management.

Income Funds Felt the Pain in 2023, which saw investors fleeing from some UK equity income funds, with big names like HL UK Income and the Premier Milton UK Multi-Cap Income experiencing significant asset shrinkage.

But not all funds felt the pain. abrdn UK Income Equity and BNY Mellon UK Income, for example, both saw net asset growth thanks to a combination of  solid performance and inflows.

Overvalued funds

  1. Overheated US Tech Sectors: While AI may hold promise, relying solely on sectors like the S&P Information Technology and Communications Services might be risky.
  2. Funds Experiencing Outflows: Be cautious of funds with declining assets, as it could indicate investor concerns about their strategies.

Undervalued funds

  1. Ways to play UK dividends /income  UK Equity Funds: Consider diversified exposure through UK equity funds, especially those focused on income and undervalued sectors.
  2. Dividend-Paying Stocks: Explore high-yielding FTSE 100 stocks with sustainable payouts and strong fundamentals.
  3. Funds with Proven Track Records: Look for UK equity income funds that navigated 2023 successfully and demonstrated consistent performance.

We can get some pointers by looking at which were the most widely bought and sold during 2023.

Most Bought Funds in 2023

(Source: Trustnet data)

  1. abrdn UK Sustainable and Responsible Investment Equity
  2. Schroder Prime UK Equity
  3. Artemis UK Select
  4. abrdn UK Income Equity
  5. BNY Mellon UK Income
  6. WS Gresham House UK Multi Cap Income
  7. Royal London UK Equity Income
  8. BlackRock UK Income
  9. Fidelity UK Smaller Companies

Most Sold Funds in 2023

(Source: Trustnet data)

  • HL UK Income
  • CT UK Equity Income
  • Artemis Income
  • Liontrust Special Situations
  • BlackRock ACS UK Equity Tracker
  • Royal London UK Core Equity Tilt
  • WS Lindsell Train UK Equity
  • IFSL Marlborough UK Micro-Cap Growth
  • Liontrust UK Smaller Companies

Do your research and diversify your portfolio

Of course, diversification is key to any investment plan and while UK equities present exciting opportunities, don’t neglect other asset classes and regions in your portfolio.

Do your research, consider your risk tolerance, and if you are unsure consult with a financial advisor before making any investment decisions.

This year, don’t just chase the latest tech darlings. Explore the potential of undervalued markets like the UK and unlock the power of dividends.  

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