This month we catch up once again with our panel of multi-managers and ask for their views on the best investments opportunities. Rather than build their portfolios by investing in individual stocks or bonds, our experts invest largely or exclusively in investment funds and trusts, which leaves them well-placed to identify the strongest prospects.
Considering the uncertainty around the Brexit negotiations and Donald Trump’s policies, some of our managers opt for a more cautious approach. Several are looking towards Asia, especially Japan, to escape the nervousness surrounding politics in the West. However, others opt for UK- and Europe-focused funds, arguing that opportunities are still to be had in certain sectors across those regions, such as student accommodation in the UK.
Meanwhile, some of our panellists express an interest in the technology sector and the gold sector, to further diversify and mitigate against prevailing political and geopolitical uncertainties. As ever, diversification remains paramount to all of them.
1. Peter Hewitt - F&C
The biotechnology and healthcare sector possesses certain attractive long-term secular growth characteristics, argues Hewitt; but over the past year concerns over the outlook for drug pricing in the US has caused uncertainty among investors, and as a result shares in investment companies specialising in this area have come under pressure.
However, Hewitt says: ‘The industry fundamentals remain positive, with a series of new products, particularly in the field of gene therapy, likely soon.’ In addition, there is continuing M&A activity as big pharma firms seek to redeploy their cash flows into purchasing biotech companies with exciting new products.
‘In my opinion, valuations are at highly attractive levels, with the sector rated more cheaply than mainstream US equities yet with stronger earnings growth. An excellent way to gain exposure to these characteristics is through the Worldwide Healthcare trust,’ he comments. It is valued at £1.2 billion and trades around asset value.
Another area of interest for Hewitt is Japan, which he says ‘appears to have been very much under the radar in recent months’. Although the macro case for Japan is not exciting, what is changing is the corporate culture, which is becoming much more shareholder friendly. Further, the level of innovation among smaller and medium-sized companies in Japan remains world-leading. ‘Baillie Gifford Japan trust is focused on growth companies in this area of the market, and has built an outstanding long-term record,’ Hewitt notes.
Uncertainty in the UK economy and markets is high, he adds. ‘Against this backdrop, UK smaller companies could be described as an out of favour sector, but the Henderson Smaller Companies trust has consistently outperformed, driven by good stock selection.’ He points out that for a long-term investor the 15 per cent discount (as at 11 August) could be a good entry point.
2. Ayesha Akbar - Fidelity
Investors have experienced a reasonably benign environment since early 2016, with risk assets performing strongly. But Akbar argues these conditions are unlikely to last forever, and that building in a bit more protection into your portfolio might be sensible.
Her first pick is the Invesco Perpetual European Equity Income fund. Run by Stephanie Butcher, it aims to generate a rising level of income, together with long-term capital growth. ‘Equity income funds tend to be concentrated in traditional dividend-paying sectors,’ says Akbar. ‘Stephanie, however, does not have any preconceived notions about where income stocks can be found, and the fund often invests in unloved, undervalued parts of the market.’
Her second choice is Stewart Investors Asia Pacific Leaders. The fund is managed by David Gait and Sashi Reddy, who run a portfolio of 30 to 70 stocks. ‘The managers take a conservative approach to selecting stocks, only choosing companies that can benefit from sustainable development – both economically and environmentally,’ says Akbar. ‘Stocks are split into three broad buckets: those that produce sustainable goods such as vaccines, providers of responsible finance, and companies delivering infrastructure that society needs to function.’ The fund favours low-risk and high-quality stocks, according to Akbar, which makes it a conservative choice for investors who are nervous about higher market volatility.
Building on this conservative approach, her final choice is Investec Global Gold. It invests in companies that mine and produce precious metals. As the name suggests, the fund’s main exposure is to gold, which tends to operate as a ‘safe-haven’ choice when equity markets fall.
3. David Coombs - Rathbones
In China, the number of technology firms, insurers and other firms catering for consumers is growing quickly. ‘We have invested in the East for many years, sometimes through shares in companies and other times using funds such as Veritas Asian,’ says Coombs. ‘The sheer number of people who have worked hard and broken into the middle classes in developing nations is driving extraordinary growth in industries that offer much higher value than knock-off sneakers, plastic toys and tonnes of steel.’
But rapid innovation brings risks too, especially when there is less support for free trade, and Coombs warns that ‘investing in markets with weaker investor protections means this is not for the faint-hearted’.
Another of his picks, the Coupland Cardiff Japan Alpha fund, offers something different entirely. He owns this fund because he believes ‘seismic changes are happening in Japanese business culture’. For decades, Japan’s conglomerates were run for the benefit of employees. Shareholders generally saw poor returns and had little sway in boardrooms, but prime minister Shinzo Abe’s reforms are changing that. ‘Share buybacks and dividend payments have soared in the last couple of years,’ says Coombs.
His third choice is the Brown US Small Cap Blendfund, which ‘should be well placed to benefit from a strong US domestic market’. This fund invests in companies with small market capitalisations (though they are still billion-dollar companies).
The portfolio is split in two, with half invested in line with Brown’s value strategy and half following its growth strategy. He says: ‘US share markets are highly sensitive to shifts in investor preference for growth or value companies. We feel splitting our exposure this way helps to mitigate this risk in our portfolios.’
Coombs adds that while Donald Trump is having little success with his legislative agenda, this hasn’t prevented small business confidence riding at high levels.
4. David Hambidge - Premier Asset Management
Given the elevated level of stock markets, Hambidge’s first pick this month is ‘more about capital preservation and anyone looking to get rich quick will be disappointed’. He says the TwentyFour Monument Bond fund has so far delivered attractive levels of income compared with prevailing interest rates, with a strong focus on capital preservation. ‘The fund invests in a diversified portfolio of good quality European and Australian asset-backed securities with a bias towards residential and commercial property,’ he explains.
Hambidge’s second pick is ‘more mainstream’ and, like TwentyFour Monument Bond, is a fund that the team has held for many years within its multi-asset portfolios. The Evenlode Income fund invests primarily in UK equities that can deliver high returns on capital and sustainable real dividend growth. The majority of the portfolio is in large and medium sized companies, and the fund also generates a healthy income, currently just over 3 per cent.
Following a challenging period after the Brexit vote last summer, UK commercial property values enjoyed a strong first half of 2017, and Hambidge says he has recently been taking profits in some of his property holdings. However, he recently added GCP Student Living trust, which invests in modern student accommodation, primarily in London. ‘Demand for quality accommodation in this sector continues to significantly outweigh supply; with the shares currently yielding around 4 per cent and having some inflation protection, we believe that returns going forward should be attractive.’
5. Peter Walls - Unicorn Mastertrust
Under the strong government of Narendra Modi, significant reforms are taking place in India, where the economy is likely to be among the fastestgrowing in the world over the next decade and beyond, argues Walls. ‘Demonetisation appears to have been a success and new bank accounts have been opened at a rate of 100 million in each of the past two years. With one billion of the population now holding unique IDs, the adoption of new technology is expected to transform the economy.’ He says the India Capital Growth fund looks interesting and trades at a generous discount despite delivering strong performance in recent years.
His second choice is the Polar Capital Global Financials trust which, he says, should be a benefi ciary of rising interest rates. ‘It has the additional attraction of a fi xed life, which will lead to the elimination of its discount between now and May 2020.’
Wall’s final pick is Law Debenture trust, managed by James Henderson. He says: ‘It is one of a kind in the investment trust sector as it offers exposure to a subsidiary independent fiduciary services business and a managed global equity portfolio.’ He adds the trust offers a dividend yield of around 3 per cent, and is ‘one of the most conservatively run funds in the market’.
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