This month we catch up with our panel of leading multi-managers. 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. Each quarter we get their views on where the best investments opportunities are and hear their perspectives on the most attractive ways to gain exposure.
In recent times, Europe has been a pretty unloved part of the world for investors. For a long time performance in the eurozone was very sluggish, and a number of major elections continue to add an unpredictable element to the EU’s future. But many of our investment experts argue that the investment case for the region is once again improving.
Further afield, after five difficult years culminating in heightened worries about China’s economic growth at the beginning of 2016, emerging markets have staged a powerful recovery over the last 12 months. As a consequence, several of our panel are also looking towards Asia and emerging markets and the attractive opportunities they offer investors.
Peter Walls Unicorn Mastertrust
With many global equity markets at or close to all-time highs and average investment trust discounts standing at around 3 per cent, value opportunities are increasingly hard to fi nd, argues Walls.
‘Even so, I continue to like TR Property investment trust; it trades on a double-digit discount and has served investors very well in recent years under the stewardship of Marcus Phayre-Mudge, who was appointed lead manager in April 2011. The trust invests in pan-European property securities (31 per cent UK, 61 per cent Europe) and UK direct property (8 per cent) and offers a dividend yield of 2.8 per cent.
His second pick is Templeton Emerging Markets trust, which suffered more than most in the emerging market downturn due to overweight positions in oil and commodities. ‘Under new lead manager Carlos Hardenberg, who replaced Mark Mobius in October 2015, the emphasis on major resource companies and banks has been reduced to create a more diversifi ed portfolio by sector,’ says Walls. Despite an active share buyback programme, the shares continue to trade at an attractive discount of 13 per cent.
Sticking with the emerging markets theme, he further believes that the investment policy employed by the managers of Fundsmith Emerging Equities Trust will reward shareholders very well over the long term – but the prevailing premium(2.2 per cent on 8 May) at which the shares trade suggests that there may be better times to acquire them in the future.
Ayesha Akbar Fidelity Solutions
Although bond funds are widely considered expensive at present, Akbar’s first choice is the Jupiter Strategic Bond fund. Run by Ariel Bezalel, it invests across fixed income markets, including investment grade, high yield and convertible bonds, as well as preference shares and derivatives. She says: ‘This allows Ariel to add value by allocating across fixed income markets, as well as by selecting the individual bonds that go into the portfolio. The fund has delivered steady returns over the past year and its ability to use derivatives should help Ariel manage fund performance going forward – particularly with the complicated outlook for global growth and inflation.’
Fidelity Enhanced Income is her second choice, again with an income slant. ‘While this is a UK equity fund, run by Michael Clark and David Jehan, it uses call options to effectively sacrifice some capital growth for income generation.’ This makes it a defensive equity fund, with its primary aim to generate income. There is still some potential for capital growth though, argues Akbar.
Her final fund pick is JOHCM European Select Value. It is run by Robbie Wouters who looks for ‘classic value’ and ‘quality value’ companies. He explains these two ideas as a focus on average companies at great prices, and great companies at average prices. Akbar adds: ‘Rather than looking at the merits of its one company and its value compared to the wider universe, Robbie believes free cash flow is essential to value investing, as it provides an objective assessment of what can be analysed as offering value.’ Free cash flow is essentially the cash a company has left to distribute to investors after the firm has paid expenses and invested in its physical infrastructure, and is widely regarded as a reliable metric.
Peter Hewitt F&C Managed Portfolio Trust
GDP is at last picking up in Europe, argues Hewitt, and importantly so is corporate earnings growth, albeit from a low level. ‘In sharp contrast to the US, investor expectations are low, and when combined with valuations – which on a relative basis are also at the low end of the range – then the ingredients for better performance are present.’
He argues that Henderson European Focus is a trust that has recognised this and has begun to increase exposure to certain unloved sectors such as financials and in particular banks, where earnings upgrades are starting to become evident. The trust has a strong long-term performance record and he believes it is a good way to gain exposure to Europe.
With growth rates in China stabilising, the outlook for corporate profits in Asia Pacific has improved, according to Hewitt. Fidelity Asian Values trust has generated strong performance and Hewitt argues that prospects are positive. ‘The manager prefers smaller companies and tries to identify the “winners of tomorrow”, but also believes that many of the 17,000 small companies listed in the region are under-researched and mispriced, which creates exciting investment opportunities for the diligent investor.’ Currently the trust is overweight India where prospects are favourable, growth is strong and there are many opportunities amongst smaller and mid-sized listed companies.
With the onset of Brexit negotiations and the upcoming UK general election, levels of uncertainty regarding both the UK economy and financial markets are at high. Against this backdrop, UK smaller companies and, more particularly, UK micro-cap companies have struggled to fi nd favour over recent months.
However, the River & Mercantile UK Micro Cap Trust has delivered outstanding performance since listing in December 2014, says Hewitt. ‘Key themes in the portfolio of 45 holdings are digitisation and big data, and the manager has identified a series of companies with considerable growth opportunities, with many using new technologies. Valuations are much lower at this end of the market and there is quite a bit of takeover activity, which has benefited the portfolio.’
David Hambidge Premier Asset Management
With interest rates remaining at rock-bottom levels and an ageing population with a natural demand for income, Hambidge’s first pick this quarter is a fund which provides a healthy quarterly dividend stream that he says is likely to grow over time. ‘It also provides something genuinely useful to society, a point that is sadly lacking in the ongoing debate of whether active or passive investing is best.’
The fund he is referring to is Target Healthcare Reit, which has been held in his income-producing portfolios since it listed on the London Stock Exchange in March 2013. The portfolio is made up of a diverse collection of quality care homes, each enjoying modern en suite facilities and run by highly regarded operators; it currently pays a dividend of around 5.5 per cent. ‘This is attractive not only relative to cash and UK government bonds but also to UK equities. Meanwhile the capital should be relatively secure, albeit not risk-free.’
Investors who do not require an income and are prepared to accept a bumpier ride might want to take a look at the GLG Japan Core Alpha fund, he says. This fund invests in larger Japanese companies and focuses on those that are out of favour with investors and therefore cheap. ‘We blend this with other funds which invest in alternative areas of the Japanese stock market. However, we rate the managers of the GLG fund highly and believe that this will produce decent long-term returns for patient investors who are prepared to accept large swings in the value of their investment.’
Hambidge’s third pick is Schroder Income. ‘This fund is a little like the GLG Japan Core Alpha fund, in that it invests primarily in larger companies (albeit UK-listed rather than Japanese) that are out of favour with investors,’ he explains. He adds that whilst its long-term track record is excellent, the Schroder fund has underperformed the UK stock market so far this year, which means that now could be a decent entry point for long-term income-seeking investors.
Hewitt is director and investment manager with the F&C global equities team and fund manager of the F&C Managed Portfolio Trust, where he specialises in investment trusts. He joined the firm in 1983.
Walls manages Unicorn Mastertrust, an open-ended fund of investment trusts. Prior to joining Unicorn in 2001, he was an investment trust analyst and commentator for nearly 20 years.
Hambidge is head of multi-asset investment at Premier Asset Management. He helped set up Premier’s fund-of-funds operation in 1995, and he is regarded as one of the UK’s most experienced multi-managers.
Akbar is a portfolio manager in Fidelity’s multi-manager team. Prior to joining Fidelity, she worked at Barclays Wealth, where she helped establish the firm’s multi-manager business.
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