Making better returns than market averages is difficult, but some fund managers have done this consistently. And when it comes to generating income, or navigating high-risk sectors and regions, a skilled mind is needed to avoid the pitfalls.
However, singling out the funds run by managers who can do this is also difficult. There are many funds to choose from. And comparing their performance against an index and sector average doesn’t always tell the whole story, because these numbers don’t take into account factors such as a manager’s style, strategy and investment ideology.
But below are 10 funds whose managers’ skills are proven. They know what their strategy is, don’t waver from their approach in hard times and over the long term have beaten their benchmarks.
EQUITY GROWTH
Man GLG Undervalued Assets (GB00BFH3NC99)
This UK equity fund is managed by Henry Dixon and Jack Barrat, who are very focused on value. They look for shares they think are trading below their fundamental and intrinsic value. Even though this style of investing has not been in favour, the fund has performed very well. Over five years Man GLG Undervalued Assets has returned 49 per cent, versus 41 per cent for the FTSE All-Share index and the Investment Association (IA) UK All Companies sector average of 32 per cent.
Adrian Lowcock, head of personal investing at Willis Owen, says: “The managers add value by thoroughly analysing company balance sheets to understand a business’s true asset [value] and liabilities. They identify two types of stock: those trading below their view of the company’s value and those where the company’s profit stream is undervalued relative to the cost of capital. The fund has a value bias, but includes elements of quality and positive earnings momentum. Henry Dixon has demonstrated an ability to consistently execute the process with discipline.”
The fund has an ongoing charge of 0.9 per cent.
Fidelity Global Special Situations (GB00B8HT7153)
Long-term investors need exposure to the world’s equity markets. A good way to get this can be a global fund whose manager consistently selects the world’s best companies. One such example is Fidelity Global Special Situations, which Jeremy Podger has run since March 2012. Since then, the fund has returned 176 per cent, versus 157 per cent for MSCI All Country (AC) World index and the IA Global sector average of 128 per cent. Mr Podger has invested in global equities via the same style since 1990 and is one of the most experienced global equity managers available to UK investors.
Ryan Hughes, head of active portfolios at AJ Bell, says: “Mr Podger adds value through stock selection using the large resources available at Fidelity. The fund is diversified with more than 100 holdings and should be considered as a core global growth holding that could capture long-term opportunities.”
The fund has an ongoing charge of 0.92 per cent.
EQUITY INCOME
Troy Trojan Income (GB00BZ6CQ176)
The UK has been a great source of dividend-payers and its market, on average, typically has a higher yield than other regional equity markets. Although Brexit uncertainty has depressed UK share prices, dividends continue to grow, with MSCI United Kingdom index on a yield of 4.7 per cent.
A good way to access these opportunities could be Troy Trojan Income, which has been run by Francis Brooke since 2004 and Hugh Ure since 2011. They aim to minimise capital loss and pay sustainable dividends. The fund has a yield of about 4.3 per cent.
Mr Hughes says: “If Brexit takes a turn for the worse, this fund is defensive and may offer some protection from sharp equity falls in the UK market.”
The fund has 41 holdings, and over five years has returned 42 per cent, versus 32 per cent for the FTSE All-Share index and the IA UK Equity Income sector average of 26 per cent. It has an ongoing charge of 0.87 per cent.
Fidelity Global Dividend (GB00B7778087)
Although the UK is a good source of income, long-term investors should diversify their sources with exposure to other markets. One way to do this is Fidelity Global Dividend, which has been run by Dan Roberts since launch in January 2012. This fund has nearly £1bn in assets under management.
Mr Lowcock says: “Mr Roberts is supported by six regional income specialists and Fidelity’s research resource. He focuses on quality companies, which offer a good degree of capital protection during market downturns, and looks for companies with stable finances and strong cash flows, which underpin the reliability of dividend payouts.”
The fund can lag in a bull market, but has outperformed over the long term. Over five years it has returned 77 per cent, in line with MSCI AC World index but ahead of the IA Global Equity Income sector average of 52 per cent.
Fidelity Global Dividend aims for a yield of 125 per cent of MSCI AC World index’s yield, and [at time of writing] has a historic yield of 3 per cent versus 2.6 per cent for the index. The fund has an ongoing charge of 0.92 per cent.
DIVERSIFYING ASSETS
Man GLG Strategic Bond (IE00B7VMRN51)
Bonds used to be the go-to assets for diversifying an equity-focused portfolio, but now there is no guarantee they will perform very differently to equities. Bonds are sensitive to rises in interest rates, and the longer a bond has until maturity – its duration – the more at risk its capital value is. So it’s wise to get exposure to this asset via an active manager who has the freedom to invest in the best parts of the debt market at the right time. Man GLG Strategic is run by Craig Veysey, who recently moved from Sanlam to Man GLG and took this fund with him. He doesn’t just invest in higher-risk areas to drive returns, but also tries to avoid capital losses. The fund has a lot of exposure to investment-grade bonds and Mr Veysey manages risk by actively managing the average duration of the fund’s holdings. Over three years the fund has returned 26 per cent, versus the Sterling IA Strategic Bond sector average return of 14.4 per cent. The fund has a yield of 4.5 per cent and an ongoing charge of 0.64 per cent.
Kames Property Income (GB00BK6MJF73)
Over the long term commercial property investors have benefited from capital growth, and good and stable income. Kames Property Income has been managed by David Wise since launch in 2014 and Richard Peacock since 2017. They invest in offices and retail properties but, unlike some peers, focus less on London offices and the south-east of England. The fund has less than 25 per cent of its assets in the south-east, with 17.6 per cent in the north-west and 14.1 per cent in the south-west. The fund has a historic yield of 5.1 per cent.
Open-ended physical property funds can adjust their unit prices in times of stress, and this fund has in the past adjusted them to try to discourage outflows. So Kames Property Income is only suitable if you have a long-term investment horizon.
DOWNSIDE MITIGATION
Janus Henderson UK Absolute Return (GB00B5KKCX12)
When funds’ returns are uncorrelated with mainstream assets such as equities and bonds, they can provide portfolio protection. And if they also offer growth and income they should help to grow your portfolio in a risk-adjusted way. Janus Henderson UK Absolute Return is an example of a fund that has done this, and Mr Hughes says its flexible investment remit could be useful over the next 12 months.
The fund invests in UK equities, but also bets on share prices falling – ie shorts stocks – so can provide positive returns in bear and volatile equity markets. Mr Hughes says: “Managers Luke Newman and Ben Wallace have proved they have the skills to profit when markets become difficult. Although this is not a cheap fund, if its managers continue to deliver positive returns when the market is down they will have earned their fees.” The fund only lost 2.7 per cent in 2018 when the FTSE All-Share was down 9.5 per cent. The fund has an ongoing charge of 1.05 per cent and a performance fee of 20 per cent if it outperforms over the long term. In the fund’s last financial year the performance fee amounted to 0.33 per cent for this share class.
Newton Real Return (GB00BSPPWT88)
Absolute return funds are supposed to provide positive returns regardless of market conditions over specified time periods, but not all of them succeed in doing this. Those that do are a good way to minimise downside and diversify portfolios, and they include Newton Real Return, which has made positive returns in six out of the past seven calendar years.
Its longstanding manager Iain Stewart stepped down last year. It is now co-managed by Suzanne Hutchins, who was previously its deputy manager, risk strategist Aron Pataki and Andy Warwick, who before joining Newton last year ran multi-asset funds at BlackRock for 13 years. Mr Lowcock says: “The team’s first priority is capital protection and then, over the long term, to deliver [positive] returns. The fund has an unconstrained and flexible strategy, which uses Newton’s thematic research to identify opportunities. It invests in shares and bonds, which its managers aim to hold for the long term, alongside cash, government bonds and derivatives to reduce risk.”
Over one year the fund has returned 5.5 per cent versus 4.66 per cent for its Libor plus 4 per cent benchmark. It has an ongoing charge of 0.7 per cent.
SPECIALIST EQUITIES
Polar Capital Global Insurance (IE00B61MW553)
Specialist funds that focus on a niche area but tend to be aligned to long-term trends can provide strong returns and diversify investment portfolios. One such fund is Polar Capital Global Insurance, which invests in companies that are benefiting from growing demand for insurance and increasing consumer spending power in emerging markets. Since 2001 it has been managed by Nick Martin who was previously an auditor for insurance companies.
Mr Hughes says: “Insurance companies have a fantastic ability to generate cash regardless of the economic environment. Polar Capital Global Insurance’s manager is an expert in this field and this shows in the quality of his management. The fund has a relatively low correlation with global equities so adds useful diversification to a broad equity portfolio.”
Over five years the fund has returned 115 per cent, versus 78 per cent for MSCI World Insurance index and 79 per cent for MSCI World index. It has an ongoing charge of 0.88 per cent.
RWC Global Emerging Markets (LU1336213936)
Emerging and frontier markets are regions where it is a good idea to invest via managers who have specialist knowledge and skills. This is so they can pick out the fastest growing companies benefiting from secular trends. An example of such a manager is John Malloy, who has run RWC Global Emerging Markets fund since launch in 2015.
Before taking on this fund he ran a hedge fund, and he still employs some of the techniques he used on the latter. He makes both long-term and short-term investments, moving his allocation quickly if things go wrong. RWC Global Emerging Markets also differs from some emerging market funds in that it has a sizeable exposure to frontier markets.
Over three years the fund has returned 100 per cent, versus 77 per cent for MSCI Emerging Markets index and the IA Global Emerging Markets sector average of 64 per cent. The fund has high trading costs in addition to its ongoing charge of 1.3 per cent, but it should benefit from long-term growth in emerging and frontier markets so still provide investors with good returns.
IC Isa guide 2019
