Six Elite Rated funds and how they do things differently

When you are thinking about investing in a fund, it’s always important to know exactly what it does and how it differs from the hundreds of similar portfolios out there.

Most of the time this means comparing fund notes, reading investment commentary, and looking for tips.

At FundCalibre, we like to do a lot of this hard work for you. This week, we hosted a journalist event and had the opportunity to talk to six Elite Rated fund managers in person, and find out exactly what sets them apart from the rest.

Here is what they had to say.

Paul Flood, BNY Mellon Multi-Asset Income

This multi-asset fund invests directly in securities – it is not a fund of funds. We identify thematic long-term trends – such as decarbonisation – and produce a growing income.

Why do we invest directly in assets? Because we think it gives you a better holistic understanding of the risks in the portfolio. We also believe achieving good returns is as much about what you don’t own as what you do. This helped in 2022, when the fund produced positive returns while the average peer was down by double digits.

Today, we’re seeing income opportunities in fixed income – you can get a 4.5% yield on 10 year Treasuries, for example – and the rebirth of the 60:40 portfolio [60% shares, 40% fixed income]. Bonds will play a much larger part in returns going forward and, as more and more people retire, we think the demand for natural income will also help income-producing equities.

Click here to listen to Paul’s interview as part of our ‘Investing on the go’ podcast series

Peter Michaelis, Liontrust Sustainable Future Global Growth

We aim to produce superior returns by investing in sustainable companies – the ones that, as they grow, are helping to make the world a cleaner, healthier, and safer place. Every investment strategy needs to decide where to focus and, for us, those companies are our focus.

The world doesn’t stay the same and we find ways to make things more efficient and get better outcomes. We also learn from events like the global financial crisis and cyber-attacks. And these are areas of strong growth that will persist for many years.

Some of our recent investments, for example, have been in the largest wind turbine manufacturer in the world, companies that prevent disease through gene sequencing and digital security. I’m particularly excited about clean energy and think we are on the cusp of real penetration. The circular economy is also exciting – finding ways to use our waste.

Tom Lemaigre, Janus Henderson European Selected Opportunities

We invest in global companies that happen to be located in Europe. So, with this fund you are not getting exposure to domestic Europe – quite the opposite. And why would you do this? Because you can invest in some excellent mega and large cap names like LVMH, Porsche, ASML and, importantly, get them cheaper than their global peers.

European equities are currently at a record discount to the US, and this makes no sense when you think these companies are actually competing in the same global market. Over the next 10 years, when interest rates are no longer zero, we think valuation – what you pay for a company – will matter and influence future returns.

I’m excited about some thematics at play that could really benefit European companies. Automation, energy efficiency and getting hold of the ‘golden screw’. What I mean by this is that in covid companies were frustrated that there was demand for products, but supply chain disruption meant that they couldn’t get that one last component they needed. So, there is lots of spending to bring things closer.

Click here to listen to Tom’s interview as part of our ‘Investing on the go’ podcast series

Charles Luke, Murray Income Trust

This trust is dependable, diversified and differentiated. We look for quality companies and make sure that no more than 5% of the income or capital is attributable to a single stock. We invest overseas – around 17-18% at the moment (up to 20% is allowed) – and have a healthy exposure to mid-caps. We have absolutely no exposure to tobacco companies.

The overseas access gives us access to companies and industries that simply aren’t available in the UK, like technology, AI, cosmetics, and lifts. So, you’ll notice we hold Microsoft, VAT (a semiconductor firm), L’Oréal and Kore. It also helps us access better quality versions of UK-listed businesses and add diversification if an industry is very concentrated.

The process has been successful over a long period of time. The trust has just celebrated its 100th birthday and 50 years of consecutively growing its own dividend. We have tapped into the revenue reserve on a couple of occasions to make this possible, but I calculated that over the Trust’s story, of the 835p of dividends paid, only 10p has come from reserves.

Praveen Kumar, Baillie Gifford Shin Nippon

Don’t invest in this trust if it’s only going to be for 2-3 years! It’s very volatile and totally focused on growth. We invest in Japanese smaller companies that are going to be tomorrow’s winners, not yesterday’s. And we are not looking to make a quick buck but to be patient, waiting 5 years or so if necessary for a story to play out. But that means there is no place to hide!

Typically, we invest in companies even Japanese people have not heard of. Every member of our team goes to Japan and does the leg work. And we look for obscure companies that are disrupting big markets. We always travel outside of Tokyo, as Tokyo does not represent the real Japan. Neither does the stock market – which is dominated by car manufacturers – reflect the economy. 70% of the economy is actually consumption, and if you can separate the two, you can make money.

I’m excited about how out of favour the asset class is right now. Money has been taken out of even very good companies that are growing 20-30% and profitable. Their margins are expanding but they are being treated like they are going out of business. So, we are trying to own as much of them as possible.

Click here to listen to Praveen’s interview as part of our ‘Investing on the go’ podcast series

Alec Cutler, Orbis Global Balanced

The average time horizon these days seems to be anything from 6 months to 3 years – people want investments to pay off quickly. We have a much longer time horizon of 3-5 years though, and we are willing to be patient.

The big differentiator I think is we make our assets compete against each other – we don’t allocate a proportion of the fund to each – we make every single position fight for its place. How? Well, we look at the risk and reward of each idea. Just because a bond might not have the potential reward of a tech stock doesn’t mean its lower risk is not more attractive – we look at both together and decide which is best.

We can also use hedging and manage currencies if we want to, so it’s a really flexible fund. What this means is the fund itself acts a diversifier in portfolios, and it can sit alongside other multi-asset funds as it has low correlation.

Click here to listen to Alec’s interview as part of our ‘Investing on the go’ podcast series