A bottom-up approach to investing has allowed a number of standout managers to top their respective sectors over the past decade, including the likes of BlackRock’s Richard Plackett
, Artemis’ Tim Steer
and Cazenove’s Julie Dean
Darius McDermott, managing director at Chelsea Financial, expects stockpickers to continue to outperform in the current market conditions and has flagged five such managers to look out for 2013.
Alex Wright, an up-and-coming manager in the UK Smaller Companies sector, takes an unusual approach compared with his peers, according to McDermott.
"Smaller companies funds tend to be growth-oriented, but Alex uses a value approach."
"He tends to look for unloved and undervalued stocks and he uses Fidelity’s in-house research process for a lot of his ideas."
Over his three-year track record, the FE Alpha Manager has nearly doubled the returns of his peer group composite, returning 86.36 per cent compared with 46.96 per cent from his rivals.
Performance of manager vs peer group composite over 3-yrs
Source: FE Analytics
Wright’s four crown-rated Fidelity UK Smaller Companies
fund is a top-quartile performer over every period since launch, doubling the returns of the sector over each term.
The fund requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.72 per cent.
Investing in Asia has been a popular trend over the past few years, as countries such as China have continued to grow at a faster pace than the developed world despite a recent slowdown.
McDermott says Matthew Dobbs’ Schroder Asian Alpha Plus
is an "out-and-out Asian stockpicking fund”, and recommends the manager as a solid stockpicker in the Asian market.
Over his career, Dobbs has consistently outperformed his peer group composite, delivering 343.79 per cent over 10 years compared with 157.37 per cent from his rivals.
Dobbs’ four crown-rated Schroder Asian Alpha Plus fund is a top-quartile performer over one, three and five years.
It is also one of the most stable, ranking in the top quartile in terms of volatility over five years, with a score of 22.62 per cent, according to FE Analytics
"The fund has a mid to small cap bias, which we quite like. It will have bits and pieces in cyclicals," McDermott said.
The manager also heads up a series of offshore funds, including Schroder Asia Pacific
, Schroder Oriental Income
and Schroder ISF Global Smaller Companies.
With investors moving back into a risk-on position after equities rallied during the last two quarters, McDermott tips "new, but not young" manager Terry Smith as one to outperform in the coming years.
Smith, founder and chief executive of Fundsmith, heads up the £582m Fundsmith Equity fund, which McDermott says is going to be included on Chelsea Financial’s buy-list.
The fund, which was launched in November 2010, is the best-performing fund in IMA Global since this time, with returns of 30.59 per cent. The sector made 5.95 per cent.
The portfolio also more than doubled the returns of the MSCI World index, which made just 12.33 per cent over the term.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
"He’s certainly not young, he’s a very experienced manager," McDermott said. "It’s a global, concentrated quality companies fund. Terry is looking for companies with high operating margins and stays away from cyclicals."
"It’s a simple, extremely low-turnover strategy."
The fund requires a minimum investment of £1,000 and has a TER of 1.69 per cent.
FE Alpha Manager Giles Hargreave is well-known for his long and successful track record in small cap investing, and McDermott says his consistent outperformance is unlikely to wane.
"His passion for investing is clear and from everything he has indicated to us, there is no hint of retirement," McDermott
"While he still manages the fund, Giles has also built up a strong team of small cap experts at Hargreave Hale."
Over 10 years, Hargreave has massively outperformed his peer group composite, delivering 322.48 per cent compared with 134.48 per cent from his rivals.
Performance of manager vs composite over 10-yrs
Source: FE Analytics
Each of Hargreave’s three funds with a track record longer than five years are top- quartile performers over this period, as well as over three years.
Marlborough UK Leading Companies
and Marlborough Special Situations
are also top-quartile performers over 10 years.
The Marlborough Multi Cap Income fund, which was launched in June last year, is a top-quartile performer over one year.
Another smaller companies manager to make McDermott’s list of stockpickers is Artemis’ Mark Niznik.
"He’s a solid stockpicker,"
said. "He’s more about quality than growth, which makes him slightly different from Giles Hargreave."
Over the longer-term, Niznik has significantly outperformed his peer group composite, returning 208.73 per cent over 10 years, compared with 135.90 per cent from his rivals.
The FE Alpha Manager has also outperformed his peers over one and three years.
However, he has had a difficult time over five years, returning less than half that of his peer group, at 8.07 per cent.
Since he joined the four crown-rated Artemis UK Smaller Companies
fund in 2007, it has been a bottom-quartile performer losing 2.13 per cent, while the sector is up by 15.92 per cent.