Best performing funds and trusts in January
Research from Quilter found that active equity fund managers outperformed their market indices in...
It’s that time of year again, when oversized handbags relinquish their function as a fashion accessory and become the ultimate weapon in the battle that is the January sales. Or at least they would do normally.
With all non-essential shops shut across most of the UK this year, like most things in recent months, the battle is more of a virtual one in 2021. Swinging handbags and elbows have been replaced by flashing warnings that there’s “only 4 left and 3 of them are in other people’s baskets”.
Some people relish finding a bargain and the same is true with investing, particularly in today’s market environment, when it’s mainly the horrendously out-of-fashion, unloved and – for now at least – unused companies that look to be attractively-priced.
As with the January sales, savvy investors can be well-rewarded through patience and careful selection.
We take a closer look at five fund managers who spend all year looking for the cut-price gems others have failed to notice – and one who has adopted this stance to make the most of opportunities in 2020.
Manager Richard Penny is, by his own confession, a tight-fisted Yorkshireman when it comes to his investments. He likes to find a bargain and uses his stock-picking skills to find under-the-radar or undervalued companies with the ability to grow more than market expectations or recover from recent set-backs.
Companies in the fund tend to fall into two categories: rising stars and fallen angels. Rising stars are quality companies that are growing and have high returns on cash. These can be small or medium-sized businesses that, although established, their strengths have not yet been recognised in their share price. Fallen angels are the very cheapest shares in the market: the big price fallers and recovery companies, where there is hidden value and discarded quality.
This fund aims to offer a combination of capital growth and a yield of around 25% more than the MSCI All Countries World index. When considering potential investment opportunities, the manager places a large emphasis on the sustainability of the dividend and whether the current share price provides an adequate margin of safety.
Manager Dan Roberts has a value-oriented approach, selecting those opportunities with strong balance sheets, which may be out-of-favour, have a quality earnings stream, and are trading at attractive valuations. Given his focus on capital protection, Dan likes to have a diversified income stream so that he does not rely on any one country or sector in the portfolio.
Manager William Lam invests primarily in the shares of companies in Asia and Australasia (excluding Japan) in this concentrated, value-orientated fund. The behavioural error of mixing up good businesses with good investments can often lead to trouble, but William’s very pragmatic approach is designed to separate these two elements.
William takes a long-term approach, aiming to buy companies below their intrinsic value – as determined through their fundamental analysis – and wait for the market to recognise this through share price growth. As he says himself: “A share price is just the collective view of hundreds of human beings, who can often be unimaginative, over-emotional and too short-termist.”
This fund invests conservatively around the world in a diverse range of individual equities and bonds and other assets. The managers’ buy ideas purely focus on stocks that are significantly out-of-favour, and they won’t chase new fashions, ideas or high-growth stories.
In general, shares are bought providing the team sees at least a 50% upside in their value. This is their required margin of safety and sometimes a greater upside is demanded if they feel the risks are significant. Outside of the equity portion of the fund, other assets are used to dampen volatility and reduce downside falls.
TB Wise Multi-Asset Growth is a ‘fund of funds’ that can invest in funds or investment trusts in any or all of the following asset classes: cash, fixed interest, shares – both listed and private equity – commercial property (via investment trusts), and infrastructure funds including renewable energy.
The team aims to invest in these funds or trusts at times when their prices are significantly below what it estimates are their fair values. Co-manager, Vincent Ropers, told us more about value investing in this video:
Manager John Bennett is neither a value nor a growth manager – just pragmatic. But in the second half of 2020 he tilted the portfolio to be value in style. Europe itself has been out-of-favour for some time with investors, and the market falls earlier in 2020 opened up a lot of opportunities to make a number of value purchases.
So John sold some healthcare companies and staples like Nestle and Unilever, and invested instead in a number of financial companies, auto makers like Peugeot, BMW and Daimler, and cyclical firms such as Total.
NB: This blog was originally published on FundCalibre in December 2017 and edited for re-publication in January 2021