Income 1: Growth 0 in a year of two halves
2018 was a year to forget for growth investors. While many stock markets in the developed world hit...
Another new year is upon us and, for many, this signifies a fresh start and new opportunities ahead.
We identified five funds to watch as the year unfolds – funds that could offer similarly optimistic new investment opportunities.
This is the most recent addition to Baillie Gifford’s Japanese equity fund range. Launched just 18 months ago, it aims to take advantage of the improving corporate governance we are seeing in Japan. One of the big changes to occur in recent years it that more and more Japanese businesses are moving towards a progressive dividend-paying policy and this fund taps into this theme: a new corporate governance code, coupled with a large cash pile on Japanese balance sheets is a big opportunity for income-seeking investors.
This fund launched as recently as September 2018. It invests in UK companies of all sizes, but will typically have a bias towards small and medium-sized companies. It will also hold some carefully chosen AIM-listed companies. While the fund is new, the manager (who we have known for many years), style and process all have a good long-term track record. The manager likes to find a bargain, and over his career, has proven himself very able to do so. Having moved from a big company to a small boutique, this first year will be an important one for the manager to prove himself to potential investors.
With the UK stock market yielding close to 5%, we think UK equity income funds could do well this year. This particular fund has a bias towards smaller companies but can invest in businesses of any size. Under manager Ken Wotton, who also runs the highly successful Gresham House UK Micro Cap fund, this fund is just eighteen months old and is targeting an initial yield of 4%, with the aim to grow it over time. It is very early days, but the fund held up extremely well when markets fell at the end of 2018 and, since launch, is up 7% compared with a sector average loss of more than 5%*.
This fund is run by a highly experienced manager who has consistently outperformed. Having spent more than two decades at Fidelity, Graham Clapp launched his own business in 2006, which was subsequently bought by RWC in 2017. Despite his experience and impressive track record, Graham has remained somewhat under the radar for many UK investors. This could all start to change this year: after 30 years and more than 15,000 discussions with companies about their prospects, he is finding the opportunities to invest are better than ever.
This more specialist fund marks its third anniversary at the end of January and we’ve liked it since its launch. It invests mainly in investment trusts exposed to different types of UK infrastructure; from railways and roads to GP surgeries and solar power. It yields 5.7% and offers an excellent way to invest in the growing need for infrastructure in the UK. It also offers investors some protection against rising inflation and we like the fact that it can invest in infrastructure debt, as well as infrastructure equities.
*Source FE Analytics, total returns in sterling, 30 June 2017 to 7 January 2019.