My top pick: nine wealth managers' favourite funds
Senior investment manager, multi-asset funds, Premier Asset Management, Guildford
We don’t try to predict what’s going to happen over the next 12 months, but look instead to invest where valuations and probabilities suggest high future returns. On that basis, one of our most favoured areas is Asian smaller companies.
Asian markets rallied hard last year, but this was heavily large cap driven. Smaller companies missed out on that re-rating, and therefore became more attractive versus their larger peers and their wider global competitors. Additionally, “value” underperformed “growth” in these markets, making it a relatively bad year to be in Asian small cap value.
That draws us – unsurprisingly, given our contrarian leanings – to an Asian small cap value fund. Run by Nitin Bajaj, who is a genuinely active value investor, Fidelity Asian Smaller Companies fits the bill perfectly, and we have topped up our exposure here in recent months.
Investment director, JM Finn, London
Last year saw a series of property fund launches, becoming increasingly and worryingly esoteric as the year progressed. One stand-out launch was the Aberdeen Standard European Logistics Income fund.
Logistics warehouses across Europe have been incredibly attractive in the UK, aided by the vast sums raised by similar funds; however, the market in Europe is comparatively underdeveloped. According to Cushman & Wakefield, UK property values have risen strongly, compressing prime yields to little over 4%, prime yields in Europe are in the order of 5-6%.
This demand has been driven by the rapid growth of e-commerce in Europe; online sales lag the UK in terms of overall sales, but are forecast to grow at a faster annual rate in 2016-21. Therefore in an uncertain world, the forecast yield of 5.5% and potential for capital growth looks compelling.
Associate director, Myddleton Croft Investment Managers, Leeds
While 2017 was the year for passive investors, those more active with their investments could benefit during 2018.
The British Empire Trust is structured to achieve capital growth by investing in a portfolio of global companies which the manager considers to be undervalued, off investors’ radars and with the potential to outperform because of corporate activity or change in sentiment. A position is sold once it has realised its potential value for this actively managed fund.
Our investment rationale is based on increasing merger and acquisition activity, and a rotation to value investing in 2018 which should drive the trust’s underlying investments from large discounts towards their intrinsic worth. Furthermore, the manager’s move to a more focused portfolio during 2017 is considered beneficial.
It is worth noting that British Empire traded on a premium to net asset value of over 5% back in 2009 and, in our view, the current near 10% discount presents an excellent opportunity.
Chartered wealth manager, James Brearley & Sons, Preston
The Nikkei 225 rose 19% last year and 2018 looks set to be another promising one for Japan. The index hit highs not seen since 1992 in November as Shinzo Abe secured another term in office and after a strong earnings season.
In comparison to other developed markets, Japan still looks undervalued and with a stable political backdrop and structural reforms aimed at boosting shareholder returns taking effect, we believe Japan has strong growth potential and our favourite fund in the region is the Lindsell Train Japanese Equity fund.
The fund adopts a buy and hold, low turnover approach and the manager, Michael Lindsell, who has managed the fund since 2004, maintains a highly concentrated portfolio, which is focused on high quality large-cap stocks with strong branding power and competitive advantages that we believe will mean the fund will continue to outperform over the long term.
Partner, 8AM Global, Andover
My pick for 2018 is the Legg Mason Japanese equity fund managed by Hideo Shiozumi. I like the macro environment for Japan, with the most recent GDP data showing for the first time in more than 15 years that the country’s economy has grown for seven consecutive quarters.
In addition, evidence from the BoJ’s latest quarterly survey shows confidence among Japanese companies, with capacity shortage across all industries. This bodes well for capital expenditure in 2018.
Although some of this profit growth has been discounted in share prices during the recent rally, overall market valuations are still attractive relative to their own history and compared to other global markets.
Shiozumi has an abundance of experience in running an aggressive portfolio of small, mid and large cap stocks to maximise returns when the environment is supportive. His focus on high growth companies sits well with our views on where to invest in Japan.
Business development director, Blankstone Sington, Liverpool
As we move into a new era of (admittedly) gradually rising rates, we expect bond prices to trend lower and the total return from most bonds to be close to zero over the next 12 months.
We see a very mixed performance in equities. The recent breakthrough between the UK and the EU regarding the bill for Brexit is leading to hopes a hard Brexit may be avoided boosting UK equities and sterling in response.
This, in turn, raises the possibility of domestic-focused businesses such as general retailers and UK-focused banks starting to outperform. Natural resource stocks such as miners should do well on buoyant metal and mineral prices. US and Asian equity markets may go higher purely on momentum, but we are concerned that these areas are starting to show characteristics of a bubble, and are therefore cautious.
Our fund picks, therefore, would be the following investment trusts: Schroder UK Mid-Cap and Blackrock World Mining Trust.
Chartered wealth manager, Raymond James, Cardiff
My Selection for 2018 is the Davy Discovery Equity Fund, managed by Chantal Brennan and Jeremy Humphries. It has been one of my more consistent performers since I bought it in 2016. In 2017 it has delivered another year of strong performance rising by 18.8%.
After meeting the team in London in 2016, I was convinced of the benefits of adding a smaller companies fund to my portfolio, particularly one focused on high-quality companies.
They invest in quality smaller companies globally using their complementary skill sets in fundamental and quantitative analysis to find stocks. The businesses they invest in are high margin, high return, generating lots of cash and are protected by high barriers to entry, ensuring the fund has relatively low turnover.
What really impressed me about the team was that they have a clear and systematic process for defining quality companies which is consistently applied at a global level allowing them to assess all companies irrespective of region or sector.
John Paul Thornber
Investment manager and strategist, Andrews Gwynne, Leeds
2017 was a strong year for a number of the long/short equity funds that we hold with most beating the market comfortably. By comparison, James Clunie, manager of the Jupiter Absolute Return fund, runs a more conservative strategy, with a justifiably watchful macro view and this held him back, posting a mildly negative return in a go-go year.
However, it is James’ very erudite caution that makes him my pick for 2018 as he remains positioned to benefit from troubled markets but has been keeping his portfolio conservatively positioned with lower gross exposure than peers.
Should markets simply try to re-price towards less irrational metrics (necessarily much lower) we would expect steady or even solid returns.
This may sound terribly dull but as we are bombarded by fact-light euphoric commentary when in reality the S&P’s trailing (so real) EPS is only just recapturing 2014 highs and while the market-distorting US short volatility complex grows terrifyingly large we may be very happy with dull in 2018.
Director, Gore Browne Investment Management, Salisbury
'My choice is Hansa Trust, which should be considered a global equity fund of funds, having been repositioned from being substantially invested in UK equities in the past.
'It has an allocation to safer investments (long/short etc) but it can always be expected to be invested 70% in equities under any market conditions. This is because it is long-term patient capital, and they are conviction investors.
'The largest holding is Ocean Wilsons, currently 31% of the portfolio. This is quoted in its own right, has its own global equity portfolio, and has a major position in Wilson Sons in Brazil, which we believe is substantially undervalued. Hansa Trust is on a c27% discount to NAV, and Ocean Wilsons is on a discount of c25%. Any reorganisation of the portfolios might provide substantial gains, while the shares offer good value anyway.'