Five funds for 2020

After the dramatic stock market falls during the last few months of 2018, global markets were surprisingly resilient in 2019: they shrugged off a number of negative scenarios to post positive returns for investors: 23.5% to be exact*.

Dominated by geopolitical uncertainty in the form of trade wars and Brexit, much of the credit for this resilience in markets is down to the move of numerous central banks across the globe to take a dovish stance on rates, after seeing the quick shift in market sentiment when they threatened to raise them at the end of 2018. It looks like lower rates are here to stay for some time yet and will continue to give markets a welcome boost.

That said, it would be remiss of me to ignore some of the threats still hanging over us. The US election is likely to impact markets as the presidential campaigns gather momentum, and we’ve been in a bull market for more than a decade now, so valuations look expensive in a number of asset classes.

Here are five funds for investors to consider for the next 12 months.

Fidelity Special Values

After more than three years of uncertainty, the General Election at the back end of 2019 has finally given the UK a more stable government with the mandate to “get Brexit done”. Whether this happens remains to be seen, but what it has started to do is lift the gloom around the UK economy. There is an argument that this in now the right time to be a value investor – as the UK’s unloved stocks could well recover. The Fidelity Special Values trust is managed by Alex Wright and targets stocks that are out-of-favour and meet two strict criteria: companies with exceptionally cheap valuations or an asset, such as intellectual property or inventory, which has the potential to limit share price falls, and companies where there is a catalyst for significant earnings growth. The portfolio holds between 80-120 companies.

Polar Capital Global Insurance

This fund typically invests in 30 to 35 companies and is an option for investors who feel markets may struggle in the next 12 months. Managed by Nick Martin, it has proven its ability to generate returns in all market conditions. When assessing individual companies, the manager emphasises underwriting, reserving, balance sheet integrity, management and inside ownership. Insurance, as a sector, tends to be less volatile than the wider market. That has been reflected by the fund’s performance: it has produced a positive return in nine of the past 10 years, with its only year of negative performance came in 2009 – when it fell just 2.43%^.

BlackRock Continental European Income

Europe has been maligned by investors for some time, but the fact remains that it is the home of a number of successful global businesses. Managed by Andreas Zoellinger, this fund identifies stocks that offer sustainable dividends, potential dividend growth and inflation protection. Andreas works with the 20-strong European equity team to undertake individual analysis. He targets businesses with good management, a strong competitive position and good financial discipline. Andreas will actively manage the portfolio to find a balance of companies with large, but secure dividends, and those able to grow dividends faster than the average company.

M&G Global Dividend

Geopolitics are still front and centre for the global economy, so diversification remains a shrewd move for investors in 2020. This fund, managed by Stuart Rhodes, is a dividend growth strategy, which is not constrained by a yield target. Stuart avoids the highest yielders and buys companies which are growing their dividend every year. This fund is quite different from its peers because Stuart is not afraid to have some commodity exposure. A portion of the fund is also invested in rapid growth businesses, which may have a small starting dividend, but are growing quickly. The fund has delivered admirably on its goal of growing its distribution, and the resulting total return since launch has been excellent.

Goldman Sachs India Equity Portfolio

India was tipped by the International Monetary Fund to be the fastest growing economy in 2019** but a crisis in the shadow banking sector temporarily hit economic growth. However, the long-term story is simply too great to ignore. Favourable demographics, urbanisation and the increasing size of the middle-class population are the macro drivers supporting this view. No country on earth has the favourable demographics India has: more than 50% of the population is under 25 years of age (a total of 600 million people), with 1 million new people entering the workforce each month***. Investors may want to consider the likes of the Goldman Sachs India Equity fund as an “all weather” offering, with manager Hiren Dasani and his team having a long-term time horizon and low portfolio turnover.

*Source: FE Analytics, total returns in sterling, 1 January 2019 to 30 December 2019, MSCI AC World Index
^Source: Source: FE Analytics, total returns in sterling, calendar years 2009-2019
**Source: IMF, October 2019 https://blogs.imf.org/2019/10/15/the-world-economy-synchronized-slowdown-precarious-outlook/
***Source: Urban Population, World Bank (2017). Indian Demographics, United Nations World Population Prospects (2017 Revision)