Overlooked opportunities in mid-caps
I’m sure most people have heard of middle child syndrome – some have no doubt experienced it...
It’s week 13 of working from home. Despite restrictions starting to lift, we’re in no hurry to go to the shops and pubs. Sure, time has been moving slowly and a little differently the last few months, but we adapt, we evolve, we make a ‘new normal’.
I read recently that lockdown spending patterns have been similar to those of retirement (although personally I hope to be working a lot less in retirement!), and I suppose that’s true: we’ve become more frugal (with the exception of some new plants), savings are up and leverage will probably come down. Travel costs and discretionary spending – like date night and days out with friends -are pretty much non-existent.
The permanent changes to behaviour and risk don’t bode well for longer-term economic growth, but it does appear good for ability to manage debt – something many millennials struggle with daily. It may also mean that they start saving and investing sooner rather than later.
“When you retire, you switch bosses. From the one who hired you to the one who married you.” — Gene Perret, screenwriter
Saving for your retirement and investing for your retirement are two very different things. It’s great to save part of your pay cheque each month, but you also need to be sure you’re putting that money to work to take advantage of compounding. Don’t just squirrel the money away in the bank – you need to think long term to invest for your future. At FundCalibre, we advocate active management: those funds run by skilled fund managers aiming to beat their index, not passive funds which simply track an index.
Asia has always been a popular choice for growth. The region is expected to account for 60%* of global GDP (the total value of all of the goods made, and services provided, during a specific period of time) in 2030 and be responsible for 88%** of new members to the middle-class by the same date. T. Rowe Price Asian Opportunities Equity fund has a ‘safety first’ approach meaning the fund tends to do well when times are tough, such as now. The fund is up 28.4%*** over the last three years, compared to a sector average of 9.9%***.
China – the epicentre of all things Asia – is closing in on the US as the world’s largest economy, while India – the world’s second-most-populous country – is expected to see massive growth over the next three decades and is projected to be the world’s second-largest economy by 2050^. Investors looking for exposure to these countries specifically may like to consider Invesco China Equity or IIFL India Equity Opportunities. Guinness Emerging Markets Equity Income is also an option: run by co-managers Edmund Harriss and Mark Hammond with a one in, out-out approach, it currently has 21%^^ allocated to China and 8%^^ in India.
Interested in keeping your nest egg closer to home? AXA Framlington UK Mid Cap is growth-orientated and focuses on medium-sized companies including home furnishings retailer Dunelm, which is in its top 10^^. The fund has outperformed the sector by more than 12%*** over the last 3 years. Alternatively, Montanaro European Income, which focuses on small and medium-sized businesses in Europe, may be an option. We recently caught up with manager George Cooke who told us his views for dividends in Europe following the pandemic.
More cautious investors may consider M&G Corporate Bond, run by experienced manager Richard Woolnough. The fund has been a core holding in the corporate bond sector for many years.
And if you’re not sure how to balance caution and growth yourself, you might like to consider a multi-asset fund and let a manager do the work for you. Premier Multi-Asset Growth and Income is a fund of funds, which holds the above mentioned Montanaro European Income and also Elite Rated Baillie Gifford Strategic Bond^^^. A more cautious approach is Jupiter Distribution with only 23%*^ invested in equities.
*Source: World Economic Forum, 2019
**Source: European Commission, Foresight: Growing Consumerism
***Source: FE analytics, total returns in sterling, 16 June 2017 to 16 June 2020
^Source: PwC, The World in 2050
^^Source: fund factsheet, 31 May 2020
^^^Source: fund factsheet, 30 April 2020
*^Source: FE Analytics, asset class breakdown, 30 April 2020