After a challenging year for most regions, our expert panellists name the investment funds and trusts that look best-placed to deliver the goods in terms of growth and income in 2019.
Artemis US Extended Alpha (growth)
TR 1 year 12%, 3 years 65.8%, yield 0%
The US stock market is notoriously difficult for active funds to beat; therefore investors should either opt for a low-cost tracker fund or seek out an actively managed fund doing something genuinely different from the crowd. This one is doing just that, as it is a long/short fund. In other words, it has the ability to profit from falling share prices (up to 30% of the portfolio), as well as those that rise. Both Ben Yearsley and Kelly Prior named the fund as their number one North America fund choice. “At this stage of the cycle I think it’s an interesting way to access the US market,” says Yearsley. (2019 Money Observer Rated Fund)
Fund factsheet: Artemis US Extended Alpha
JPMorgan US Equity Income (income)
TR 1 year 11.2%, 3 years 60.1%, yield 2%
This income fund with a value bias was backed by both John Husselbee and Jason Broomer. Both point out the fund has lagged the broader US market over recent years, due to a low weighting to the tech giants (the FAANGs), as many of these firms do not pay dividends and therefore fall outside of this fund’s investible universe. Husselbee argues that a sustained recovery in value will see this fund climb up the league tables. Broomer agrees: “Should returns from the US equity market become more broad-based, this fund, which focuses on well-run blue-chip US companies, may well offer investors highly attractive risk-adjusted performance.”
M&G North American Value (wildcard)
TR 1 year 8.8%, 3 years 60.2%, yield 0.7%
Another fund that follows the value discipline. Daniel White, who has managed it since September 2013, applies a screening process to identify the cheapest 25% of companies in each sector. He then analyses the universe and picks out stocks whose true value he believes has been mispriced. Brian Dennehy of Fundexpert.co.uk is a fan. He adds: “We don’t go in for short-term momentum, but this fund is interesting on a very short and very long-term basis. It is top quintile in the IA North America sector over one month (during a period of high volatility) and over 10 years is up nearly 400%. A good opportunity to buy into a fund focusing on stocks undervalued by the market.”
Fund factsheet: M&G North American Value
Crux European Special Situations (growth)
TR 1 year -9.7%, 3 years 37.6%, yield 1.1%
Fund managers Richard Pease and James Milne buy global businesses that happen to be listed in Europe. A focus on businesses with resilient earnings helps the managers spot the shares they believe are better placed than most to withstand downturns. Ben Yearsley points out the fund has not had a great 2018 by any means, down 10% year-to-date versus 8% for the IA Europe ex UK sector. But in 2019 he is backing the fund to return to form. “Having two poor years would be unusual. This is a core holding looking to buy great long-term businesses.” (2019 Money Observer Rated Fund)
Fund factsheet: Crux European Special Situations
Baring Emerging Europe IT (income)
SPTR 1 year -7.8%, 3 years 54%, discount -14.6%, yield 4.9%
Following the closure of BlackRock Emerging Europe, this is now the only investment trust that focuses specifically on emergent European markets. It invests in companies whose revenues are derived principally from activities in Russia, Turkey and Poland. Although it is primarily a growth fund, its annual dividend payment and tasty yield (which is higher than most income-focused funds and trusts) mean it has made the income category for 2019. “It offers adventurous investors an interesting play on hopes the region might begin to normalise,” says Charles Murphy.
Fund factsheet: Baring Emerging Europe IT
Standard Life Investments Europe ex UK Smaller Companies (wildcard)
TR 1 year -5.6%, 3 years 44.4%, yield 1.2%
Dennehy points out that in general it has been a troublesome year for European small-cap focused funds. But, over long time periods, the phenomenon of small shares outperforming large ones also applies to Europe. He says this fund stands out from the crowd performance-wise over the long term, but may not be on most investors’ radars, as it contains just £65 million of assets. He adds: “This fund is beaten up. However, this isn’t bottom-fishing. We know that smaller companies tend to outperform. If you can buy into a huge universe of opportunities when the sector is beaten up, why wouldn’t you?”
Fund factsheet: Standard Life Investments Europe ex UK Smaller Companies
Baillie Gifford Japanese (growth)
TR 1 year -0.2%, 3 years 65.1%, yield 0.9%
This fund remains as popular as ever, despite the retirement of longstanding manager Sarah Whitley last year. Matthew Brett is considered a worthy successor, especially given Baillie Gifford’s team-based approach. This is the open-ended sister to the Baillie Gifford Japan investment trust, which sits on a premium of 5%; that premium can be avoided through selecting the fund at this juncture. Brett looks for shares that possess a competitive advantage and have robust finances, and he also likes to see strong management alignment with shareholders. (2019 Money Observer Rated Fund)
Fund factsheet: Baillie Gifford Japanese
Morant Wright Nippon Yield (income)
TR 1 year -3.1%, 3 years 47.9%, yield 2.6%
This is one of the few Japan funds with an income focus. At just over 2%, it has one of the highest yields in the sector. While dividend yields for Japan’s equities are low, the government is putting pressure on Japanese firms to become more shareholder-friendly, so in years to come there may potentially be richer income pickings for investors. Although income and income growth over the long term are the managers’ primary objectives, capital protection is also key. (2019 Money Observer Rated Fund)
Fund factsheet: Morant Wright Nippon Yield
Man GLG Japan Core Alpha (wildcard)
TR 1 year 0.9%, 3 years 45.1%, yield 1.7%
Yearsley describes this choice as “an unashamed value play in Japan”. He adds: “It’s large-cap, follows a well-defined process and looks primarily at balance sheets and cash flow. Large-cap value looks cheap in Japan and companies are in good shape.” Fund manager Stephen Harker (who has managed the fund since 2006) is a contrarian investor, actively looking for companies out of favour with investors. He selects companies with strong fundamentals where he believes there is the opportunity for a turnaround.
Schroder Asia Pacific Fund IT (growth)
SPTR 1 year -9.3%, 3 years 61.4%, discount -11.8%, yield 1.4%
This trust invests for growth in large cap Asian companies. Matthew Dobbs has been manager since 1996. Backed by a large locally based research team, he has a formidable long-term record but has struggled recently. Sandy Cross expects him to do well when markets recover. “In my view Asian markets have become rather oversold and may present opportunities over the coming year,” he comments.
Fund factsheet: Schroder Asia Pacific Fund
Newton Asian Income (income)
TR 1 year 3.2%, 3 years 44.7%, yield 4.5%
This fund was managed for over a decade by Jason Pidcock before he jumped ship to Jupiter in 2015. This led investors to exit Newton Asian Income, which declined in size by over £3 billion. But since Zoe Kan took the reins in June 2016, performance has been solid – particularly on a one-year view, as the fund has posted a small gain versus a high single digit loss for the average fund in the IA Asia Pacific ex Japan sector. Dennehy, who picks the fund as his Asia choice, adds: “It gives investors access to the Asian dividend story; reform-minded governments, growing middle classes, young demographics and countries with lower debt than their developed counterparts.”
Aberdeen Standard Asian Focus IT (wildcard)
SPTR 1 year -2%, 3 years 39.1%, discount -14.5%, yield 1.3%
This is the new name for Aberdeen Asian Smaller Companies Trust, which has suffered a disappointing run. Murphy expects better times following moves to a more focused approach and the decision to make Aberdeen Standard’s Asian guru, Hugh Young, directly responsible for the portfolio. John Newlands says: “The decision to bring Hugh Young back to centre stage and tighten the portfolio demonstrates an independent board in action, and I now see this trust as a recovery opportunity.” The discount also catches the eye. (2019 Money Observer Rated Fund)
Mobius IT (growth)
SPTR 1 year n/a, 3 years n/a, discount -5%, yield 0%
Launched in October, the Mobius management team includes Mark Mobius and Carlos von Hardenburg, who made their names at Templeton Emerging Markets Trust. It invests for growth in mid-cap emerging market companies. Tim Cockerill rates the team highly. He says: “Emerging markets currently offer some of the best-value equity markets globally.” Peter Hewitt is also a fan. He adds: “The team are good investors, and should have time to get fully invested before emerging markets start to gain traction.”
Fund factsheet: Mobius IT
Utilico Emerging Markets IT (income)
SPTR 1 year -4.5%, 3 years 30.8%, discount -14.4%, yield 3.6%
This trust invests in infrastructure and associated areas in fast-growing emerging countries. This gives it considerable defensive qualities. It has been managed since launch in 2005 by Charles Jillings. “This formula should be more defensive than mainstream regional equities. The fund is on a good discount and pays a healthy dividend,” says Cross. Another attraction is that the income is paid quarterly. (2019 Money Observer Rated Fund)
Fund factsheet: Utilico Emerging Markets IT
Artemis Global Emerging Markets (wildcard)
TR 1 year -6.2%, 3 years 56.6%, yield 2.1%
Tipped by both Husselbee and Dennehy, this is another value-oriented fund; as an added bonus it happens to be investing in ‘cheap’ regions following a tough 2018, as a strong dollar and the US/China trade war weighed heavily on emerging market shares. Dennehy adds: “This is a value fund investing in an undervalued sector, so there is potential for an extra kick if we see value funds outperform in 2019.
Fund factsheet: Artemis Global Emerging Markets
Note: fund tips are shown in green and investment trust tips in blue. (SP)TR = (share price) total return. = 2019 Money Observer Rated Fund. All performance data Morningstar, as at 1 December 2018. Read about Money Observer Rated Funds here.
Our wildcard tips explained
This year we asked our experts for wildcard picks: out-of-favour funds where a catalyst for a change in fortunes is expected, making them value opportunities. Investment trust bargains can be spotted by assessing the discount relative to historic highs and lows. Picking open-ended fund bargains is more art than science.
Our fund and trust tips panels
Our fund experts:
Kelly Prior is an investment manager in BMO Global Asset Management’s multimanager team. She joined the group from Thames River Capital in 2007.
Brian Dennehy is managing director at advisory firm Dennehy Weller. He also runs FundExpert, which provides research and insights for self-directed investors.
Mick Gilligan joined Killik & Co in 2001 and became a partner in 2004. He was previously an investment specialist at a private client advisory business.
Jason Broomer has more than two decades’ experience in fund research. He runs Square Mile’s portfolio service.
John Husselbee is head of the Liontrust multi-asset team. He has more than 25 years’ experience in managing multi-asset portfolios.
Ben Yearsley is a director at Shore Financial Planning. He was formerly head of investment research at Charles Stanley Direct.
Our trust experts:
Tim Cockerill is investment director at wealth manager Rowan Dartington, which is part of St James’s Place. It is responsible for client assets in excess of £1.5 billion.
Sandy Cross is a partner at Rossie House Investment Management, which has long favoured investment trusts for private client portfolios. He joined RHIM in 2012.
John Newlands worked for nearly a decade as head of investment companies research at Brewin Dolphin. He is founder of Newlands Fund Research.
Peter Hewitt has managed the BMO (formerly F&C) Managed Portfolio trusts since 2008. He joined F&C in 1999.
Charles Murphy is head of listed investment companies analysis at Panmure Gordon, which he joined in November 2012.
More expert tips:
- UK share tips for 2019
- UK fund and trust tips: the best routes into the unloved UK
- Six stocks for growth and income investors
- Specialist funds and trusts: 2019 tips for adventurous and cautious investors
- Global fund and trust tips: our experts name their growth and income choices
- Bond tips: time for defensive stance as bull market struggles