At the start of last year, we picked the funds we expected to perform well in the short-term, and the majority of us did rather well.
FE Trustnet editor Joshua Ausden was the best of the bunch, selecting the Marlborough UK Micro Cap Growth fund. Although it had a slow start to the year, it has accelerated since July, picking up more than 35 per cent overall.
Production editor Anthony Luzio, on the other hand, was less fortunate with his choice. Emerging markets have continued to fall since the market correction this summer and his choice of Aberdeen Emerging Markets has fared even worse than its benchmark, down 8.11 per cent since the start of the year.
Year-to-date performance of funds
Source: FE Analytics
With 2013 behind us, the journalists at FE Trustnet explain whether they are sticking with their funds from last year or whether it is time to cut and run.
F&C Global Smaller Companies IT
News editor Thomas McMahon picked the F&C Global Smaller Companies trust at the start of 2013 because he believed the rally in small and medium size companies had further room to run.
McMahon’s view has been supported by the trust’s performance. It has gained 29.02 per cent since the start of the year, more than 10 percentage points more than the IT Global Growth sector.
Year-to-date performance of trust vs sector
Source: FE Analytics
While the trust has done well of late, McMahon thinks it’s time to take profits and look elsewhere for stellar returns.
“I’m going to put my money into Fidelity Special Situations. I think Alex Wright is going to do as good a job there as he did on the smaller companies fund and the flexibility to invest in large caps will help him, at least in the first part of the year when I expect them to see a rebound in their performance relative to mid caps,” he said.
“I also want to have the ballast of larger companies in case of a market correction – I think there will be one or two eventually, perhaps around the eurozone crisis.”
Marlborough UK Micro Cap Growth
Ausden is sticking by small caps for the coming year and is putting his faith in FE Alpha Manager Giles Hargreave.
“I’ll be sticking with the fund,” he said. “Small cap managers, particularly Giles Hargreave, have had a great time of late, although I do think markets are due a breather at some point, given where valuations are.”
“However, the great thing about small and micro caps is the sheer size of the opportunity set, and Hargreave has a proven skill of recycling ideas in his portfolio and outperforming even during market corrections.”
The fund fell hard during the credit crunch in 2008, losing 37.95 per cent; however, it didn’t fall by as much as its peers that year. In the down markets of 2011, Hargreave’s fund made 2.17 per cent while the sector lost 9.04 per cent, according to FE Analytics.
Although Ausden will not take any money out of the Micro Cap fund, he thinks other areas will outperform next year.
“While I’m sticking with Marlborough, I think a fund that is better placed to perform strongly in 2014 will be Somerset Emerging Markets Dividend Growth,” he said.
“Emerging markets have had a tough time of late and Somerset has struggled within its own peer group in the last six months; with sentiment at a significant low and the manager looking for bargain stocks, I think this fund could be in for a sharp rebound.”
“The income factor and manager Ed Lam’s priority of keeping volatility and downside risk to a minimum should help it if markets were to tumble further,” he added.
CF Eden UK Select Opportunities
Reporter Alex Paget was an equity bull at the start of last year and expected the mid cap focused CF Eden Select Opportunities fund to be one of the biggest beneficiaries.
However, he agrees with McMahon that the small and mid cap rally has run its course, and as a result says he would take profits from his 2013 fund of choice.
“The reason why I picked it in the first place was because of its relatively high exposure to mid caps, which has luckily paid off. However, the FTSE 250 has gone ballistic this year and the majority of managers I speak to say it is now a fairly pricey area of the market,” he said.
“Given its perceived riskiness combined with its price, the mid cap market will probably be one of the hardest hit if there is any volatility.”
The fund, managed by FE Alpha Manager Leigh Himsworth, has picked up 31.44 per cent since the start of the year, nearly doubling the returns of the FTSE All Share and putting it well ahead of the IMA UK All Companies sector.
Year-to-date performance of fund vs sector and index
Source: FE Analytics
“Taking advice from Rathbones’ David Coombs, who says the fact that indices are overvalued means you should be looking for active fund managers who generate high alpha via stockpicking, I’m backing Martin Cholwill’s Royal London UK Equity Income fund,” Paget said.
“Equity income, I think, will still remain very popular with investors next year, but it is the fact that Cholwill has been so consistent in his outperformance and has a proven stockpicking record is why I think it will have a very good 2014.”
Henderson UK Equity Income
A year ago I was more cautious than the rest of my colleagues, but my choice, the Henderson UK Equity Income fund, performed well in spite of its more tentative approach to equity investment.
The fund has a mix of blue chips and medium-sized companies and because of this I’m sticking by it in 2014. The mid cap exposure helped the fund to outperform last year and I think large cap stocks such as BP, GKN and even out-of-favour miner Rio Tinto will bolster returns in 2014.
Over the last year, the Henderson fund has gained 31.73 per cent, nearly as much as the Marlborough Micro Cap Growth fund, and with far less volatility. It outperformed both the IMA UK All Companies sector and the FTSE All Share, with the added benefit of a 3.3 per cent yield.
Year-to-date performance of fund vs sector and index
Source: FE Analytics
However, I am tempted by the low valuations in emerging markets. While I’m not ready to back the sector overall, I do think now is a good time to pick up holdings in Asia, which I think has been unfairly dragged through the mud by other emerging economies.
One fund I expect to do well is Newton Asian Income, run by FE Alpha Manager Jason Pidcock. The five crown-rated fund has hit a few bumps recently, which has driven its share price down, but I think the manager will outperform in the long-run and now could be the opportune moment to buy in.
Aberdeen Emerging Markets
Our lone contrarian, production editor Anthony Luzio, backed the Aberdeen Emerging Markets fund at the start of last year as he felt emerging markets offered the potential for the highest returns.
However, he didn't stop to consider how the sector would fare once it was announced the US would put a stop to its quantitaive easing programme. The fund has been on a downward spiral since then, but he has no plans to sell out.
“I have been drip-feeding in to this fund so I am not so concerned about its recent poor performance,” he said.
“If my money is going in when the share price is depressed, it means the potential gains will be higher as long as the long-term case for emerging markets remains strong – and few would argue against this.”
“Of more concern to me is the soft-closure of the fund and the 2 per cent charge on any new money going into it. Once I have built up a decent stake in it – say about £1,000 – I will start drip-feeding my money into Aberdeen Asian Smaller Companies IT instead.”
“These are both funds for a long-term view, however, and it could take a good few years for the emerging markets story to get back on track.”
“If I had to back a fund for next year alone, it would be Harry Nimmo’s Standard Life Global Smaller Companies fund,” he added.
What fund would you back to be a top performer for the coming year? Tell us in the comments section below, or email us at editorial@financialexpress.net