Top 100 Funds 2019: Specialist equity funds

NEW ENTRANT: Polar Capital Global Insurance (IE00B61MW553)

Insurance company equities can be a good way to diversify the equity portion of your portfolio as they can be more defensive than the broader market. And if you do not like volatility they are a less racy way to get exposure to financials than a broader fund focused on this area, such as Jupiter Financial Opportunities (see below).

Mr Yearsley, who suggested adding Polar Capital Global Insurance to the list, says: “This is much less correlated to [mainstream] equities, and isn’t dependent on the wider economy or economic growth. Its managers run a high conviction portfolio.”

The fund has made good returns beating the MSCI World Insurance index over, one, three five and 10 years, and broader benchmarks such as MSCI World index and the IA Global fund sector average over these periods. It can also be defensive in down markets: for example, last year and in 2011 when these benchmarks made negative returns, the fund made positive returns.

Polar Capital Global Insurance’s manager, Nick Martin, invests in 30 to 35 underwriting specialists that offer a level of diversification to each other. He balances the fund’s composition to particular classes of business such as premium rates, terms and conditions, and loss activity change. He tries to invest in the best-in-class proven companies.This leads him to companies that have more focused underwriting strategies, and whose managements have a meaningful ownership stake and are incentivised to grow book value per share and dividends over time. Mr Martin and his team think that this is what drives share price performance over the long term.

They do all their own analysis and research. They also place great importance on meeting companies’ managers because insurance is a promise to pay, so an assessment of management integrity is a key part of their investment process.

Mr Martin has been co-manager on the Polar Capital Global Insurance fund since 2001, and became lead manager in 2016. He is a qualified chartered accountant, and has a degree in Econometrics and Mathematical Economics from London School of Economics.

“There are few fund managers with a more intimate knowledge of their market than Mr Martin,” comment analysts at FundCalibre. “His many years of experience and his background in audit and consultancy work for insurance companies and brokers, are fundamental to his success. [All of the fund’s managers] are extremely knowledgeable and experienced in the intricacies of the insurance world.”

NEW ENTRANT: International Biotechnology Trust (IBT)

Mr Liddell and Mr Carthew suggested adding International Biotechnology Trust. Its managers invest in companies they think have good growth prospects, with experienced management teams and strong potential upside through the development and/or commercialisation of a product, device or enabling technology. They can also invest in related sectors such as medical devices and healthcare services.

They invest in large-, mid- and small-cap companies, primarily quoted on stock exchanges in North America. They say that this is because North America is where the most established and commercial biotech and life sciences companies, and companies operating in related sectors are based. At the end of July, it had 86 per cent of its assets in North America and 14 per cent in Europe.

The trust can also invest in unquoted companies and had 14 per cent of its assets in this area at the end of July, differentiating it from a number of other biotech funds.

“We favour International Biotechnology over Biotechnology Growth (BIOG) on the grounds that, in a potentially volatile sector, it is more diversified,” says Mr Liddell. “It has also outperformed Biotechnology Growth (see below) by some margin over five years, and has the advantage of a dividend representing 4 per cent of net assets.”

The trust has beaten Nasdaq Biotechnology index over one, three and five years. It has an attractive yield of about 4.4 per cent because it pays dividends worth 4 per cent of its net asset value a year, via two payments. It funds these from capital, so it does not affect its managers’ growth-orientated investment strategy. If you are a growth investor you could reinvest the dividends.

Worldwide Healthcare Trust (WWH)

Worldwide Healthcare Trust invests in both the healthcare and higher-return, higher-risk biotechnology sector. So while it still offers some exposure to high-growth areas, it is relatively less risky than biotech-focused funds. It can invest in various areas of healthcare including patented speciality medicines for small patient populations and unpatented generic drugs. It also invests in medical device technologies, life science tools and healthcare services.

The trust had nearly two-thirds of its assets in North America at the end of July, with 15 per cent in emerging markets and 10 per cent in Asia.

The trust has a good long-term record of outperforming MSCI World Healthcare index and over the long-term broader indices such as MSCI World.

“The managers of the trust, OrbiMed Capital, are one of the leaders in healthcare and biotechnology investment,” says Mr Morgan. “The depth of medical and investment expertise they can draw on, their long experience of investing in the sector, and network of industry contacts is extremely impressive.”

In December 2017, a senior member of the trust’s management team, Sam Isaly, stepped down after former employees made harassment allegations against him. However, the rest of Worldwide Healthcare’s management team remains in place, led by Sven Borho, managing partner and co-founder of OrbiMed, and Trevor Polischuk. They had managed the trust with Mr Isaly since 1995 and 2003, respectively.

The trust underperformed MSCI World Healthcare index in 2018, but has in the past also had short periods of underperformance, so this is not necessarily a result of Mr Isaly’s departure. And over the first seven months of this year it was well ahead of its benchmark. 

Polar Capital Technology Trust (PCT)

Polar Capital Technology Trust has beaten Dow Jones World Technology index in net asset value terms over one, three and five years. It has over 100 holdings, which include large US technology companies such as Microsoft (US:MSFT) and Apple (US:AAPL), alongside smaller less well-known ones.

The trust’s investment team, led by Ben Rogoff, focuses on companies that use technology, or develop and supply technological solutions, as a core part of their business models. This includes areas such as information, media, communications, environmental, healthcare, finance, e-commerce, renewable energy and computing.

When choosing investments they conduct rigorous fundamental analysis looking at management quality, new growth markets, globalisation of major technology trends, international valuation anomalies and sector volatility.

Companies listed in North America accounted for 71 per cent of its assets and Asian companies accounted for 17.1 per cent at the end of July.

“Ben Rogoff has managed Polar Capital Technology since 2006, and performance over the past 10 years has been very strong, with net asset value total returns of 21.7 per cent a year versus 19.3 per cent a year for Dow Jones World Technology index,” comment analysts at Numis Securities. “Polar Capital Technology is an attractive way to gain diversified exposure to global technology stocks, focused on themes that are driving future growth, rather than on the industry incumbents. It is the largest and most liquid [technology trust] with a market capitalisation of over £1.8bn.”

The trust has made a number of changes to its fees. It used to charge 1 per cent a year on net asset value up to £800m, 0.85 per cent on net asset value between £800m and £1.7bn, and 0.8 per cent on net asset value above £1.7bn. But since 1 May 2019, it charges 1 per cent of net asset value up to £800m per year, 0.85 per cent on net asset value between £800m and £1.6bn, 0.8 per cent on net asset value between £1.6bn and £2bn, and 0.7 per cent on net asset value above £2bn. The trust had assets of £2.08bn at the end of August.

It is also reducing its performance fee from 15 per cent to 10 per cent of outperformance of the Dow Jones World Technology Index. The cap on the amount which can be paid out in any one year has been reduced from 2 per cent to 1 per cent.

The trust’s management firm, Polar Capital, is paying all research costs from 1 January 2019. Before this the trust paid 50 per cent of these. And Polar Capital will contribute £100,000 a year to the trust’s external marketing costs.

The trust had an ongoing charge plus performance fee of 1.33 per cent at the end of its last financial year, on 30 April, but these changes mean this could fall.

Allianz Technology Trust (ATT)

Allianz Technology Trust has a good record of beating the Dow Jones World Technology index and the returns of other technology trusts. The trust’s managers aim to invest in companies they expect will benefit from continued growth in certain sub-sectors of technology, in particular companies that provide solutions to save money, or that enable companies to improve relationships with customers and grow revenues. They also seek to hold companies that will create shareholder value with the introduction of a new product or technology.

The trust’s investment team is led by Walter Price, co-head of the AllianzGI global technology team, who has over 40 years’ experience of investing in technology. They are based near Silicon Valley where many of the world’s key technology companies are headquartered, and the trust had 88.5 per cent of its assets in North America at the end of July.

A downside to the trust is its performance fee, which took its ongoing charge up from 0.91 per cent to 2.05 per cent at the end of its last financial year, according to the Association of Investment Companies.

Jupiter Financial Opportunities (GB00B5LG4657)

Jupiter Financial Opportunities, which has been run by Guy de Blonay since January 2011, has beaten its benchmark, MSCI ACWI Financials index over one, three and five years, as well as broader global benchmarks such as MSCI World index and the IA Global fund sector average.

Mr De Blonay has a strong historic record of making good returns with financials funds. He looks to invest in companies with favourable growth prospects due to factors such as proven managements or strong products and services. He also looks for companies that can benefit from promising trends or themes within their sectors, of which the current share price doesn’t seem to reflect their full potential.

The fund invests in various types of financial companies and, at the end of July, support services accounted for 36.8 per cent of its assets, financial services 28.9 per cent and banks 10.9 per cent. It also has exposure to sub-sectors including software services, life insurance and real estate.

The fund’s allocation to UK companies is equal to, or greater than, the UK weighting in MSCI ACWI Financials index, but its allocations to other countries are unconstrained. The fund is mainly invested in developed markets, and at the end of July North America accounted for 62.4 per cent of its assets and Europe ex UK 13.8 per cent.

BlackRock World Mining Trust (BRWM)

BlackRock World Mining Trust’s returns have been very volatile, in keeping with the assets it mainly invests in – the shares of mining companies involved with a range of materials including copper and gold. In recent years it has had a mixed performance record against EMIX Global Mining index, although in the past it has made very strong returns. Over the first half of 2019, for example, it lagged this index because of lack of exposure to iron ore producer Fortescue Metals (FMG:ASX), which did well following the sharp rise in the iron ore price after the collapse of the Brumadinho tailings dam in Brazil.

The trust has been run by Evy Hambro since September 2000, who has over two decades of investment experience, and Olivia Markham since April 2015.

The trust’s policy of distributing a substantial amount of the income it has available means it had a yield of 5.7 per cent at the end of August, and paid out 18p a share in respect of its last financial year. Growth investors could reinvest the dividends.

BlackRock World Mining Trust can also put up to 20 per cent of its assets into unquoted investments, including royalties derived from the production of metals and minerals. This means returns can differ from the EMIX Global Mining index. At the end of June, it had one unquoted investment, OZ Minerals Brazil Royalty, which accounted for 2.1 per cent of its assets, and on which it had made a 187.3 per cent total return since investing in it.

It also had a quoted royalty investment, the Vale debentures, which accounted for 3 per cent of its assets.

“This is a core holding for investors seeking diversified exposure to global commodity companies who also wish to receive an income,” says Mr Morgan. “In addition to gaining exposure to one of the most established and well-resourced teams in the sector, we also like the [ability] to invest in royalty agreements with mining companies to enhance its yield.”

Like most of the funds in this section, BlackRock World Mining Trust is high risk and you should only invest in it if you have a high-risk appetite and a long-term investment horizon.

FUNDS DROPPED: Biotech Growth Trust (BIOG)

Two of our panellists, Mr Carthew and Mr Liddell, suggested dropping Biotech Growth Trust in favour of International Biotechnology Trust (see above). Biotech Growth Trust has underperformed International Biotechnology over one, three and five years. It is also run by the same team as Worldwide Healthcare, so if you held it alongside the latter you would have exposure to the same management team. Orbimed, these trusts’ manager, also lost one of its senior managers – Sam Isaly – at the end of 2017, although still has many senior team members in place.

“Since Sam Isaly departed Orbimed, both Worldwide Healthcare and Biotech Growth have struggled a bit,” says Mr Carthew. “I’d keep the former, larger trust on the list but replace Biotech Growth with International Biotechnology, which seems to be establishing a much stronger track record.”

International Biotechnology Trust had 14 per cent of its assets in unquoted investments at the end of July, differentiating it from a number of other biotech funds. But Biotech Growth Trust only had 0.7 per cent of its assets in unquoted investments at the end of July, and cannot invest more than 10 per cent of its assets in this area.