Calquhoun (pictured), who runs a selection of passive and mixed active and passive portfolios for advisory clients, says using passives for core exposure reduces costs, but adding a layer of actively managed funds allows the portfolios to create a bit of alpha – or value – helping them beat the market. With this in mind, he reveals two active and two passive funds JM Finn is backing.
Standard Life UK Equity Income Unconstrained
A new addition to JM Finn’s portfolios in the wake of Neil Woodford’s announcement he would be leaving Invesco Perpetual is the four crown-rated Standard Life UK Equity Income Unconstrained fund, managed by Thomas Moore.
“[Moore] manages the fund in a different way from other fund managers,” Calquhoun said. “He avoids the top 20 income-paying names and takes a more focused mid cap approach. He’s a young, dynamic fund manager. If you look at his track record, it’s fantastic. We think he’s a good man to back now that [equity markets] are moving on.”
The fund, which has a 3.31 per cent yield, has beaten the IMA UK Equity Income sector over one, three and five years. Although the fund does not have a benchmark, it has also trounced the FTSE All Share over each period.
The fund has made 168.44 per cent since Moore took over the fund in January 2009, nearly 80 percentage points ahead of the sector and index.
Performance of fund vs sector and index since 2009
Source: FE Analytics
Among Moore’s top holdings are UK discount airline easyJet, FTSE 250 soft drinks producer Britvic and HSBC.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.91 per cent.
Cazenove Strategic Bond
An actively managed fund that has been a staple in JM Finn portfolios is Cazenove Strategic Bond, which will change its name to Schroder Strategic Credit in March.
The £688.3m fund, managed by Peter Harvey, has an attractive 5.1 per cent yield.
Calquhoun says it protects investors' cash when bond markets are doing poorly, as was the case last year.
“It’s all developed market bonds, nothing touching emerging markets, which we like. It provides very good risk-adjusted returns,” he said. “It’s one of our longest-standing bond funds.”
The fund has tended to lag behind the IMA Sterling Strategic Bond sector, but as Calquhoun highlighted, it does effectively protect capital in turbulent bond markets. Last year the fund was ahead of the sector, returning 3.52 per cent. This was also the case in the credit crisis in 2008. That year the sector was down 11.68 per cent while the sector fell 13.54 per cent, according to FE Analytics.
Source: FE Analytics
The manager favours debt from banks and telecommunications, media and technology stocks, which make up the two largest sector weightings in the fund. Bonds from Deutsche Bank, HSBC and Rabobank Nederland feature in the top-10 holdings, as do some from Virgin Media.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.09 per cent.
Vanguard S&P 500
On the passive side of the fence, Calquhoun likes the Vanguard S&P 500 index tracker, which he says offers an excellent and inexpensive way to gain access to the US equity market.
“It doesn’t sound very exciting, but we tend to go more passive for clients in developed markets. The reason we chose the Vanguard fund over something like iShares is because of the extremely low [cost] of just 0.9 per cent,” he said.
Calquhoun adds that though the tracker is relatively large in size, this is a benefit because it helps to keep the cost of management down.
“It’s crucial for these types of instruments to grow very quickly. The cost of ownership is much lower and it’s a cheap way of getting access to the US market,” he said.
The fund has managed to perform in line with the S&P 500 over the last one and three years. Over the last three, it made 40.28 per cent compared with 39.3 per cent from the leading US index.
Performance of fund vs index over 3yrs
Source: FE Analytics
The fund is available via platforms.
iShares UK Dividend UCITS ETF
For investors looking for a cheap way to get income, Calquhoun recommends the iShares UK Dividend UCITS ETF, which tracks the FTSE UK Dividend Plus index.
Calquhoun says that the fund is very cheap, with charges of just 0.4 per cent, and invests in the highest yielding stocks in the FTSE.
Because the stocks have high yields, Calquhoun warns the share price performance won’t necessarily be the best, but says the index rebalances every six months so this should offset some of the worst offenders.
The Dublin-domiciled ETF distributes its income quarterly and is currently yielding 4.25 per cent. It has performed in line with the index, returning 28.76 per cent over the last three years, roughly 4 percentage points behind the FTSE UK Dividend Plus index.
Performance of fund vs index over 3yrs
Source: FE Analytics
iShares portfolios are also available via platforms.
