The millennial wealth gap
I was in a meeting this week when the subject of ‘millennials’ came up. And, shortly into the...
Investor eyes and ears (not to mention those of homeowners with mortgages) will be keenly trained on the Bank of England’s Monetary Policy Committee meeting, next month. Many expect an interest rate rise could finally be on the cards – more than a decade after the last one!
Believe it or not, July 2007 was the last time interest rates rose – from 5.5% to 5.75%. Over the next 15 months the base rate fell steadily to 4.5%. Then, when the global financial crisis really took hold, it was reduced rapidly to emergency levels: 0.5% by March 2009, and even lower in August 2016.
With much still to feel uncertain about (rising geo-political tensions between North Korea and the US and little progress so far in Brexit negotiations to name but two), it’s easy to see why some investors are feeling nervous. Although the volatility index – known as the VIX – remains alarmingly low, there’s nothing to say that volatility won’t pick up during the months ahead.
The good news is that a number of fund managers have proven their mettle through the good times and the bad. These funds are ‘Steady Eddies’ because they have shown they can deliver – regardless of what the market throws at them.
Here are five of our favourite Steady Eddie funds…
1. Scottish Mortgage Investment Trust
Oddly enough, this trust has no particular focus on Scottish investments and nothing to do with mortgages. Its name stems from its long history, which dates back to 1909. These days, the trust invests in about 70 diverse companies from around the world, which are united by their strong growth prospects.
The managers have a patient buy-and-hold approach, which has paid off for shareholders. Over the past 10 years, the trust’s net asset value has risen by 282.6%, far ahead of a gain of 117.3% by the average fund in the IT global sector*. Although the investment trust has a growth focus, it has increased its dividend for 34 consecutive years, which is another impressive accolade.
2. Marlborough UK Multi-Cap Growth
This fund invests in small, medium and large-cap UK equities, favouring companies that are leaders in their sector and that can grow regardless of the prevailing economic landscape. Marlborough has a fantastic track record when it comes to stock-picking and Richard is no different. He studiously analyses financial statements and considers the quality and sustainability of company earnings, how they generate cash and whether their business is differentiated. He will want to see that the company has a future where it can grow in its sector but also defend against rivals.
Over the past decade, Marlborough Multi-Cap Growth has returned 182.4%. This compares to 75.9% by the average fund in the IA UK All Companies sector*.
3. Royal London Corporate Bond
In addition to credit quality analysis carried out by most bond fund managers, Jonathan goes into painstaking detail, analysing covenant documents to estimate not only chance of default, but the expected recovery rate too. Over the years, he has proved adept at delving into parts of the fixed income market where others fear to tread, identifying bonds that offer superior risk-adjusted returns. The portfolio is well diversified and typically holds more than 200 names and the process is risk aware and concentrates on avoiding losers rather than picking big winners.
This is demonstrated by the stellar track record of Royal London Corporate Bond. Over the past 10 years, the fund has returned 76.2% versus 64.7% by the IA’s corporate bond sector average*. The fund has a current yield of just under 3.9%*.
4. Church House Tenax Absolute Return Strategies
This multi-asset fund has a strong track record of delivering through difficult market conditions. It is run by two very experienced managers, and is an extremely useful portfolio diversifier. James and Jeremy first form a macroeconomic view based on data, corporate activity, political risk, and the interest rate and inflation outlook. They then seek to gain an appropriate exposure across a broad range of asset classes. They assess the absolute return characteristics of each investment with a focus on avoiding loss. The fund is one of the few in its sector that targets an absolute return from diversification and risk management alone. It does not short sell any securities or indices for downside protection.
On a cumulative basis, the fund has returned 56.1% since its launch in November 2007 (just under 10 years ago) – ahead of 31.6% by the IA Targeted Absolute Return sector*.
5. Fidelity Global Dividend
This fund represents a neat solution for anyone who is looking for exposure to companies across the globe which pay an attractive or growing dividend stream. Manager Dan Roberts looks for understandable business models, with revenues that are predictable and resilient. He is happy to pay a fair price for a good company, but his value influence means he is less likely to overpay for a stock, which can help to protect against price falls in down markets.
Over the past 10 years, the fund has returned 121.1% – outpacing 88.8% by the IA global equity income sector average*. It has a current yield of around 2.8%*.
*Source: FE Analytics, total returns in sterling as at 13 October 2017.