Derek Stuart and Andy Gray look for unloved companies that are in the process of management turn-around. Over 80% of the fund is split equally between large and medium sized companies, and the rest in small and unquoted stocks. Stuart has been at the helm since launch in 2000 with Gray appointed as co-manager in 2014. The fund is skewed towards technology companies, consumer services and industrials.
Performance has dipped over the last three years following a strong run after the financial crisis, but its focus on self-help companies means it is well-positioned following the ‘Brexit’ vote.
Citywire AA-rated John Wood is wary of inflated UK company valuations and maintains a defensive portfolio with a fifth of the assets currently in cash. Rachel Reutter recently took over from Citywire AA-rated Ben Leyland as Wood’s second-in-command. The pair look for sustainable growth, steering clear of financials and telecoms in favour of businesses investing in capital expenditure and research and development. A disciplined approach to stock selection gives this fund one of the best risk-reward profiles in the sector. One of the few UK equity funds to outperform both the sector and the FTSE All-Share this year, the fund proves a safe and consistent pick.
Citywire AAA-rated Anthony Cross and Julian Fosh look for companies with intellectual property, strong distribution networks or a recurring income stream. They hold nearly 40% of the portfolio in UK large-caps and just under a third in mid-caps. Their stock-picking approach leads them to draw from a pool of Alternative Investment Market stocks, which comprise around 15% of the fund’s holdings. The portfolio has a heavy industrials weighting and the duo are not averse to holding cash when they feel the time is right. The quality companies they invest in tend to be less swayed by market fluctuations and the fund boasts stellar long-term performance, returning 228% over 10 years.
Citywire AA-rated Giles Hargreave and co-manager, A-rated Guy Feld, hold three-quarters of the fund in UK companies with a market capitalisation of less than £250m. The result is a portfolio heavily skewed towards technology and industrial firms. The managers have reduced the cash holding to 3%, as they uncover opportunities in their investment universe. Despite a rocky start to the year, strong long-term outperformance and favourable volatility relative to the FTSE Small Cap index make this a decent avenue to invest in up-and-coming UK businesses.
Next: equity income funds
Contrarian investor and Citywire A-rated manager Jacob de Tusch-Lec avoids mega-caps in his stock selection process and focuses on free cash flow-generating companies. This is a strategy which has served him well over the last five years, with the fund sitting right at the top of the Citywire Global Equity Income sector over that period.
De Tusch-Lec has a well-defined process of managing this fund, whilst still having some flexibility for his contrarian calls. The fund has very little exposure to the UK, making this an ideal pick to sit alongside a UK equity income fund.
Clive Beagles and James Lowen invest across the market cap spectrum and while its mid cap allocation may have increased the portfolio’s volatility; they are always strong in a rally. The duo have a large position in financials, taking up a third of the portfolio. They continue to have a contrarian approach and shun traditional income areas such as tobacco and have an underweight position in the pharmaceutical sector, a favourite for some of their equity income peers.
The pair’s holdings in miners and oil stocks have hurt performance over the last three years amid the commodities crunch that has only begun to lift this year and the fund has been hit by the plunge in banking stocks following the ‘Brexit’ vote. But over five and 10 years Beagles and Lowen retain some of the most impressive returns in the sector.
The fund is one to pick if you can handle short-term volatility in return for strong long-term outperformance.
Contrarian investor and Citywire AA-rated manager Richard Colwell has a steady performance record and we back him to hold out relative to the index in market downturns and participate on the upside. This dynamic makes the fund a compelling pick for the long-term investor. He favours consumer services and industrials which have been the main drivers of consistent performance in his portfolio, balancing it out with holdings in the pharmaceutical sector. He continues to add value through his stock picks which can deviate from the FTSE All-Share benchmark – a strategy that has worked well over the past year.
Citywire AAA-rated Francis Brooke is one of the most consistent performers in the sector, with much lower volatility than his peers. Our most defensive income pick, Trojan Income fund has a high weighting to consumer stocks, mainly through domestic utilities and high yielding tobacco firms. Brooke has a bearish view on the market and tends to avoid cyclical sectors. His investment process over the years has changed very little and is focused on stable or growing businesses with excellent cash flows and sustainable yields. Brooke’s reluctance to participate in market rallies can lead to bouts of short term underperformance, however, over the long term this fund delivers.
Next: absolute return
This ‘multi-asset’ fund run by Iain Stewart invests in shares, bonds, commodities and takes currency positions. The approach looks to protect capital and achieve a return of cash plus 4% over five years. This continues to be met, making the fund a compelling pick for cautious investors.
Stewart remains concerned about distortions in asset prices due to central bank policies and the fragility of an overvalued market.
Safe haven assets such as gold mining shares and US treasuries have performed well, consequently Stewart has reduced his allocations. But his exposure to physical gold - through exchange traded products - remains a key feature of the portfolio. ‘Brexit’ volatility has also given Stewart the opportunity to add new shares positions.
Citywire A-rated Sebastian Lyon has consistently steered the fund to positive returns in each and every year with the exception of a small negative return in 2013. We considered this to be a minor blip and true to form not only has he been back in positive territory for 2014 and 2015 but over the volatile first six months of 2016, it returned a solid 9.8%
His admiration of gold, which is viewed as a key inflation hedge due to the scale of quantitative easing, has not abated and is the portfolio’s top holding. Just under 40% of the portfolio is in high yielding ‘blue-chip’ shares and index-linked bonds are also favoured. Cash is just under the 30% mark due to Lyon’s fears over central bank policies, historically low global growth and high equity valuations.
Next: Asia Pacific
This is one of the best long-term performing investments in Japan. Managers Stephen Harker, Neil Edwards and Jeff Atherton are currently focused on the country’s banks, chemicals and electrical appliances sectors, while avoiding the automotive industries, machinery, food and pharmaceutical businesses. In an interesting time for Japanese investments, we back this fund to navigate it to the long-term benefit of its investors. Its value approach has been out of favour in recent months which has led to a bout of underperformance. Nevertheless it remains one of the best ways to access the market.
This fund has recently changed management with Citywire AA-rated David Gait and AAA-rated Sashi Reddy taking over from veteran A-rated Angus Tulloch in July. As with any manager change this prompts us to review its place on our list. However, Gait’s track record in the sector is one of an elite few that can match Tulloch, and as a result we see no need to change. This has consistently been among the least volatile funds in Asia, yet not at the cost of returns. The fund is set up with an all-time high Indian weighting, and a low allocation to China which has served it extremely well. India in particular is an area Gait knows well, having run the group’s Indian equity fund successfully for eight years.
This strategic fund gives the scope to invest across all parts of the global bond markets including corporate and high-yield bonds. Citywire A-rated Ariel Bezalel is shrewd in identifying market changes and adjusting the portfolio as sentiment shifts. Safe haven positions in Australian government bonds aim to mitigate continued concerns of a Chinese slowdown. He is also wary about deflationary pressures and risk in the high-yield market. We believe that through this flexible remit, Bezalel can reward investors as changes in the bond market take place.
Next: emerging markets
Hugh Young has more than 25 years’ experience in fund management and is in charge of many Aberdeen funds in the Asia Pacific region. He invests in quality companies with strong business models and, although he may lag in a rally, his consistency over the long term is exceptional. India saw the end of its longest political dynasty in 2014 and with a new government comes new reform. This fund is an excellent way to access one of the world’s most dynamic economies.
The fund has a defensive profile compared to many of its peers making this a strong pick for those wanting to access the growing domestic consumption story within the emerging markets. Citywire A-rated Nick Price invests heavily in consumer plays and in areas that are experiencing rapid growth. He avoids commodity companies influenced by state interference.
Over three, five and 10 years this fund is among the best performers in the sector. However, this year Price has lagged peers as the commodity markets have rallied from lows. Be warned, returns in the short term will be choppy and exposure to this area is for those with a long term investment horizon.
Citywire A-rated Martin Lau is the most consistent manager available to UK investors who wish to invest in the greater China region. His approach towards steady companies with strong governance significantly reduces the volatility compared to his peers. As 2014 showed, the fund does not catch all of a rally. However, it will almost always be the best fund when the market falls on hard times, taking the edge off what is an exciting but risky region.
First State Greater China Growth does not focus only on mainland China, with almost half of the investments in Hong Kong and Taiwanese firms. This naturally skews the fund towards technology stocks and away from industrial companies. Lau has additional overweight allocations to consumer-focused and healthcare firms, whilst remaining underweight financials.
The initial charge of 4% has been removed which makes this an excellent pick if you believe these Asian countries are undervalued.
Next: mixed assets
Robin Hepworth is arguably the most consistent mixed asset investor. This fund has always been among the best of its peers, blending UK shares and bonds, with a small allocation to international equities. In particular Asian equities have helped it to deliver strong returns, while sound choices in high yielding UK stocks, corporate and government bonds have also added value. Although it is at the aggressive end of the mixed asset spectrum, it is a shrewd choice for a long-term investor.
Manager Chris Burvill’s belief in shares has been persistent over the last few years and he will continue to buy them at the current levels. The main contributors towards this fund’s performance over the last few years has its holdings in smaller and medium-sized company shares, as well as strong performance of high yield and financial bond holdings. Interestingly for a mixed asset manager, Burvill is reluctant to invest in gold, believing it to be too speculative. This has cost the portfolio over the short term as gold has appreciated sharply.
Next: specialist equities
Infrastructure investments are in a sweet spot, with this fund well ahead of global equities in recent years. This is partly as infrastructure assets have great allure in a world of low yields. Moreover, the signs are that inflation might be returning and given infrastructure assets’ inherent inflation protection, it will not just be their yield that is in demand. An assured defensive investment managed by Citywire A-rated Peter Meany that is good for any long-term investment portfolio.