How the experts pick funds

Sam Slator 18/01/18 in Strategy

The turn of phrase ‘market melt-up’ has been bandied around a lot recently – apparently it even topped the Bloomberg word-count chat earlier this month.

With global stock markets and the US in particular, posting new highs on an almost daily basis, ‘market melt-up’ refers to the danger that after a sharp acceleration, the rip-roaring returns could then catch fire and fall victim to hefty price corrections.

The fear of missing out at this stage of the market can push investors to pile money into stock markets at just the wrong time. Stark warnings such as these serve as a reminder to remain diversified and to do as much due diligence as possible when selecting where to invest.

As such, we decided to look at some of the best multi-managers in the business and shine a spotlight on how they select the right funds for their portfolios.

Gary Potter and Rob Burdett

Gary and Rob head up the nine-strong F&C Multi Manager team who, among other funds, run Elite Rated F&C MM Navigator Distribution.

They select their funds on a bottom-up basis and rarely make macroeconomic calls, but they currently believe that many parts of the market are dangerously close to bubble territory and this has  been reflected in their portfolios.

Gary and Rob fear that passive funds – particularly those that follow cap size-specific indices – have been given an easy ride due to ultra-low bond yields, low market volatility and rising equity markets.

As such, they are focusing on finding genuinely active funds which they can hold for the long term (the pair have an average holding period of four years) and which overlook short-term market noise.

They concentrate investment primarily in funds where the underlying managers are experienced, have a proven ability, and are well-known to the team. However, this fundamental strategy is supplemented with emerging and new ideas or younger fund managers who are displaying abilities and an investment maturity beyond their years.

John Chatfeild-Roberts

John, alongside Algy Smith-Maxwell, Amanda Sillars and David Lewis, heads up the Elite Rated Jupiter Merlin Income Portfolio.

The team broadly operates a four-step process when it comes to selecting funds. This involves analysing the macroeconomic environment, identifying the managers set to perform best given the backdrop, to consistently monitor funds’ underlying portfolios and to be unafraid to sell out if vehicles don’t meet expectations.

Unlike some multi-managers, the Jupiter independent funds team has a ‘never say never’ attitude. In their search to provide the best investment returns, the team members believe that every potential investment should be considered solely on its own merits. They strive to buy the right quantities of the right fund manager at the right time. When a change is required, they are not afraid to make it; they believe all holdings in a portfolio should be ‘working hard’.

They are currently more positive on equities as an asset class and, from a regional perspective, Jupiter Merlin Income Portfolio’s largest weighting is to UK equities at 39.6%. These include Elite Rated Jupiter UK Special Situations, Evenlode Income and Royal London UK Equity Income.

Despite being cautious on bonds, the manager still has some exposure to the asset class (the fund is only allowed to hold up to 60% of its portfolio in equities) and is gaining exposure to fixed income through unconstrained strategic bond funds such as Elite Rated TwentyFour Dynamic Bond.

David Hambidge

The third multi-asset fund-of-fund manager on our list is David Hambidge, who is Premier’s director of multi-asset funds.

He heads up the multi-asset team which consists of Ian Rees, David Thornton and Simon Evan-Cook and, between them, they run 11 different investment vehicles including the Elite Rated Premier Multi-Asset Monthly Income fund.

What sets the team apart from other multi-managers is its contrarian approach to fund selection.

The reason the team actively seeks opportunities in value areas of the market is because they are unafraid to regularly take profits from their holdings. These are then re-invested into more unloved sectors, regions or asset classes.

At the moment, the team favours Japan, Asia and emerging markets as it believes share prices in these regions are more attractively valued. One of Premier Multi-Asset Monthly Income’s largest individual weightings, for instance, is Elite Rated Magna Emerging Markets Dividend.

*Source: FE Analytics. Total returns in sterling terms from 1 October 2007 to 10 January 2018.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.