How to benefit from 2013's top-selling funds

Looking at what investors bought last year may not seem a sensible thing to do, especially if you weren't fortunate enough to benefit from some of the spectacular returns on offer.

However, reviewing what other people have bought can often provide a really good basis for creating a shortlist of possible funds to buy this year (if they're still available).

Cazenove UK Smaller Companies

Topping the list of most-bought funds is the Cazenove UK Smaller Companies fund, which has been a stellar performer over the past five years, generating returns of 48% in 2013 and 400% over five years.

The holding has been the most popular on Interactive Investor for the last five months. To find out which nine others were in vogue with investors last month, read: January's 10 most-bought funds.

UK Smaller companies have significantly benefited over the past few years from an increasingly supportive government and a favourable economic backdrop. Unfortunately, the success of the fund has seen significant inflows, so much so that the fund is now closed to new business.

Disappointed customers do, however, have a range of attractive alternatives in the sector, including smaller company funds from River & Mercantile, Fidelity and Baillie Gifford.

Legg Mason Japan Equity

Second most-popular fund was the Legg Mason Japan Equity fund, which returned a spectacular 64% in 2013. This fund has a wide remit and tends to invest in the high-risk end of the Japanese equity market, which means it can either be very good or pretty awful, depending on the market.

In an environment of positive returns, however, this fund tends to do very well. Japan has spent almost two decades in a prolonged recessionary environment and had been a bitter disappointment for investors.

However, its new government and the prospect of the 2020 Olympics have created a wave of optimism for investors. If your view on the Japanese market is positive, then this fund is a great choice. If you think that the legacy issues will limit future growth, then you do need to be careful.

Unicorn UK Income

Global investors have to work hard to generate meaningful income these days and more and more UK investors are turning to the Unicorn UK income fund, which tops the UK equity income sector.

With a yield of just under 3%, it doesn't provide a huge amount of income but the combination of a reasonable income and great performance, up 41% in 2013, has made this fund a highly attractive option. However, talk has started about when the fund will put the brakes on for new investment and it wouldn't be a surprise to see the fund limit new investment at some point this year.

Baille Gifford Global Discovery

The unconstrained mandate of the fund has allowed its fund manager to thrive, returning 56% in 2013. While many fund managers in the Global sector invested more heavily in the disappointing BRIC economies (Brazil, Russia, India and China), this fund has been heavily invested in the better-performing Western economies, including the US and UK.

Biased towards small innovative companies, the Baille Gifford Global Discovery fund benefits from positive markets, but with both good asset allocation and stock selection, this fund is certainly one to consider for those who are high-risk investors.

Some of the funds on the list will have been effectively in the right place at the right time - benefiting from the rising tide. However, what all of the funds on the list have in common is they've done very well against all the other funds in their sector and so, on a like-for-like basis, they compare very well.

The other thing they have in common is that most of them are consistently good performers against their peer group, so even if you're only just thinking about starting to invest, most investment options are still available and you haven't missed the boat.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

This article was written for our sister title, Moneywise.