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Citywire ratings: Red October knocks high fliers

Some of the fund managers rising up the Citywire ratings were among the hardest hit by this month's sell-off.

Growth-focused US smaller companies and Japan fund managers and a China stock picker have all risen up the Citywire Fund Manager Ratings this month, yet the funds of all three were down heavily in this month's stock market sell-off.

It's worth highlighting, as it forms part of a wider trend. Some of the funds with the strongest performance, particularly over the last three years, have been hardest hit by October's slump.

That's because many have favoured growth stocks, which have enjoyed almost uninterrupted supremacy over value shares over the last decade. Their strong run has been checked over the last few weeks, however.

Our latest Citywire ratings update is based on fund managers' performance over the three years to the end of September. Check back soon to see how October's stock market shake-up impacted our rankings.

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Growth-focused US smaller companies and Japan fund managers and a China stock picker have all risen up the Citywire Fund Manager Ratings this month, yet the funds of all three were down heavily in this month's stock market sell-off.

It's worth highlighting, as it forms part of a wider trend. Some of the funds with the strongest performance, particularly over the last three years, have been hardest hit by October's slump.

That's because many have favoured growth stocks, which have enjoyed almost uninterrupted supremacy over value shares over the last decade. Their strong run has been checked over the last few weeks, however.

Our latest Citywire ratings update is based on fund managers' performance over the three years to the end of September. Check back soon to see how October's stock market shake-up impacted our rankings.

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Matthew Brett

Matthew Brett has picked up a Citywire Fund Manager AAA-rating, his first since 2014, after technology stocks powered his Japan-focused funds to sit near the top of the leader board.

Brett emerged into the limelight earlier this year after taking over from the retiring Sarah Whitley at the helm of the £2.8 billion Baillie Gifford Japanese fund and Baillie Gifford Japan (BGFD) investment trust. He had previous served as Whitley’s deputy on the trust, also working alongside her on the fund.

Over three years to the end of September, Baillie Gifford Japanese is up 92.2%, well ahead of the 68.1% average from managers in the Japan sector. The Baillie Gifford Japanese Income Growth fund he runs with Karen See is meanwhile up 19.7% over the last 12 months, having launched in 2017, versus an average manager return of 12.2%.

Both have contributed to Brett’s ascent to Citywire triple-A status, although both have been hit hard by the stock market sell-off this month. Baillie Gifford Japanese is down 11.3% and Japanese Income Growth has fallen 8.6% so far in October.

Both funds are angled towards growth and technology stocks that have powered their long-term outperformance, but also been among the worst hit by this month’s stock market falls.

The funds share seven of their top 10 holdings with tech giant Softbank and online financial services firm SBI being held in the top two spots in both portfolios.

Brett sees opportunities in automation stocks, such as Keyence and Yaskawa Electric, as well as computer games developer Nintendo.

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Eytan Shapiro

Eytan Shapiro, who joins Brett on a Citywire AAA rating, has also seen the tables turn for this top-performing JPM US Smaller Companies fund this month.

His £266 million JPM US Smaller Companies fund was up a whopping 122.5% in the three years to the end of September, well ahead of an average manager return of 82.3% in the US Small and Medium Companies sector, helping him to reach our top rating.

But returns this month have been equally dramatic, with the fund’s 15.2% loss so far in October one of the heaviest of all funds based in the UK.

As with many of the funds hit hardest by this month’s stock market falls, Shapiro is big on technology stocks, which represent nearly a quarter of the portfolio, and growth companies.

An overweight position in Grubhub, the restaurant delivery app, has a big contribution to performance after it shot up on the back of a partnership with Yum! Brands.

In the fund’s interim report covering the six months to the end of May, Shapiro also noted positions in integration software provider Mulesoft and cloud software business Okta as being ‘particularly additive’ this year.

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Ben Edwards

In a tricky year for bond markets, BlackRock’s Ben Edwards has made it to Citywire AA status thanks to playing it safe.

The big story in fixed income this year has been fears over the US Federal Reserve’s pace of interest rate rises, which has driven a big sell-off in US government bonds, or treasuries.

UK bonds have also been hit, and in pound terms have performed worse, with the dollar’s climb against the pound in 2018 helping to turn losses from US fixed income into gains for UK investors.

Edwards, who invests predominantly in UK corporate debt, has positioned his fund at the higher end of the quality spectrum, holding much more than the benchmark in AAA-rated debt, and much less in BBB-rated and below.

In the fund’s most recent annual report, he said this positioning reflected ‘stretched valuation and the risks association with the scaling back of supportive policies by the Bank of England and other central banks’.

The £766 million BlackRock Corporate Bond has delivered 15.8% over the three years to the end of September. A further two institutional funds Edwards ran, but relinquished in March this year, also contribute to his rating, and 18.4% manager return over the three years.

Edwards has also managed the £36 million BlackRock Sterling Strategic Bond fund since launch in 2016, although this is not yet contributing to its rating.

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May Ling Wee

May Ling Wee has been awarded an AA rating, three years after being appointed manager of the Janus Henderson China Opportunities fund alongside Charlie Awdry.

Over three years to the end of September the fund returned 88.2%, although, like the Bailie Gifford and JPM funds mentioned earlier, it has been hit hard in October as Chinese stocks have tumbled, losing 13.6%.

In the fund’s annual report in May, the managers said the financial sector and ‘the fund’s traditional hunting ground of consumer discretionary companies’ had delivered among the strongest returns.

The top three holdings in the portfolio are Alibaba, Tencent, and AIA Group. In particular, they said Ping An Insurance was benefiting from ‘the strong industry trend of consumers buying protection products’ while domestic sportswear brand Li Ning ‘rose strongly as the new management turned around the business’.

But the managers sounded a warning note in last month’s update, pointing to the ‘marked rise in rhetoric and action on the developing US-China trade war’.

‘The politics of fear appear to be at work globally and this trade war seems part of that as it certainly has the potential to boost Trump’s domestic popularity in the run up to mid-term elections,’ they said.

‘Projecting China as a competitor that steals jobs (without mentioning any benefit to US consumers such as cheaper goods) seems to be a key element of his current strategy.’

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Philip Roantree

AXA’s Philip Roantree has taken a different route to Citywire AA rated status than rival Ben Edwards, after chalking up the requisite 36-month track record on the £63 million AXA Sterling Corporate Bond fund last month.

Roantree has delivered 18.7% on the fund over the three years to the end of September, ahead of an average 13.6% from managers in the Sterling Corporate Bond sector. His AXA Sterling Strategic Bond fund, launched less than two years ago, hasn’t been running for long enough to contribute to his rating.

It’s Roantree’s first rating in more than a decade, with Roantree having left New Star in 2009 after its acquisition by Henderson, and a later stint of less than two years on the Downing Monthly Income fund not long enough to generate a rating.

Roantree’s AXA Sterling Corporate Bond fund is positioned lower down the quality spectrum than Edward’s with a preference for BBB bonds ‘for their extra yield’, making up 55.5% of the portfolio.

In his latest update to investors, he sounded a positive note on the bond markets.

‘While some support for corporate bonds is removed (reduced quantitative easing), fundamentals appear sound; there are few signs of wholesale corporate releveraging, which is often problematic when the economy turns.’

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