The Share Centre’s Andy Parsons has picked six funds he thinks worth considering buying this year.
Artemis High Income
The £6.3bn Artemis Income fund, run by FE Alpha Managers Adrian Frost and Adrian Gosden, is one of the most popular equity income funds on the market, particularly after the departure of Neil Woodford from Invesco Perpetual.
However, Parsons (pictured) thinks that the managers’ £851m Artemis High Income fund is worth a look for anyone seeking a yield.
At 5.4 per cent, its yield is well over the 3.8 per cent offered by Artemis Income and also, as Parsons notes, ahead of inflation and high street savings accounts.
“This fund is suitable for investors seeking additional income through a combination of debt and equity-backed investments,” Parsons said.
“Managed by Adrian Frost and Adrian Gosden, the fund has a minimum of 80 per cent invested in bonds, with the added benefit of up to 20 per cent invested in equities, which helps capital growth.”
“The fund is mainly invested in the UK, with the flexibility to invest worldwide. Industry exposure is capped at a maximum of 15 per cent to ensure that the distribution is not overly dependent on one entity or sector.”
“The fund distributes four times per annum and has a historic yield of 5.4 per cent, considerably above the current rate of inflation and interest rates available on the high street.”
Artemis High Income has produced the second-highest returns in the IMA Sterling Strategic Bond sector over three, five and 10 years, according to our data.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Clean share class ongoing charges are 0.7 per cent, and the fund is available through Trustnet Direct.
Unicorn UK Income
Unicorn UK Income was one of the fastest-growing funds of last year, going from £85m in January 2013 to £623m thanks to inflows and performance.
“This fund differs from other UK equity income funds as it focuses on smaller companies, whereas the majority of the others in the sector are heavily focused on FTSE 100 dividend payers,” Parsons said.
“The manager, John McClure, seeks companies that provide a yield and growth in the share price, which equates to strong performance in terms of total return. The fund has a small number of holdings to show John truly believes in his winners.”
“For companies to be chosen, they must demonstrate predictable revenues, earnings and cash-flows, as well as having strong balance sheets, low debt, significant market share and a competitive advantage. Further, the management team must also show an ability to create shareholder value.”
Thanks to its smaller company bias and the manager’s skill, the fund has returned more than the other 77 in its sector over the past five years: 317.77 per cent.
The only fund it trails over three years is PFS Chelverton UK Equity Income, which also focuses on small caps.
Clean share class ongoing charges are 0.82 per cent and the fund is available through Trustnet Direct.
Schroder Recovery
For UK growth exposure, Parsons rates the £605m Schroder Recovery fund, managed by Kevin Murphy and Nick Kirrage.
The fund is a consistent top-quartile performer in the IMA UK All Companies sector, returning 65.67 per cent over three years compared with an average of 36.54 per cent from its peers.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
“As its name suggests, this fund invests in companies where the profits or share price have suffered a setback but the prospects for future recovery are encouraging,” Parsons said.
“The managers look to the long-term value of a stock, rather than short-term gain, and the fund typically comprises 60 to 80 stocks.”
Clean share class ongoing charges are 0.91 per cent and the fund is available through Trustnet Direct.
Standard Life Global Smaller Companies
“There are a number of country-specific smaller company funds available, however a truly global fund helps reduce volatility and improve the risk/return reward,” Parsons said.
“The Standard Life Global Smaller Companies fund is co-managed by Harry Nimmo and his colleague Alan Rowsell.”
“To many investors, Harry is known for his management of Standard Life’s flagship UK Smaller Companies fund. It is the proven strategy of the UK fund that the global fund is based on.”
“The fund portfolio generally holds between 40 and 80 stocks, demonstrating the managers' conviction and belief in investment decisions.”
Performance of fund vs sector since launch
Source: FE Analytics
FE data shows that the £230m fund has made 52.34 per cent since launching in January 2012.
Rowsell explained his approach in a recent FE Trustnet interview.
The trust has ongoing charges of 0.98 per cent on the clean share class available through Trustnet Direct.
Legg Mason Japan Equity
The Japanese government has embarked on a programme of reform and money printing which has seen a resurgence of optimism in the country after a couple of terrible decades.
Parsons likes the £261m Legg Mason Japan Equity fund, the most volatile in the sector but also the top-performing portfolio over three and five years.
Performance of fund vs sector over 5yrs
Source: FE Analytics
“The Legg Mason Japan Equity fund, managed by Hideo Shiozumi, seeks to benefit from the economic and structural changes that Japan faces,” he said.
“These changes may be the result of the continuing and ongoing rapid emergence of the internet as a sales channel, the opportunities created by the ageing population, or the medical and long-term care industries needed to help support the nation.”
“The number of holdings varies between 25 and 60 stocks, with around 80 per cent of the holdings seen as core for the long-term, while the remaining 20 per cent are seen as tactical short- to medium-term investments.”
“The lower the number of individual holdings, the greater the conviction and bullish feeling the manager has.”
“The fund is flexible across the entire market cap spectrum, but generally focuses on smaller to medium-sized companies.”
It has ongoing charges of 1.19 per cent on the clean share class available through Trustnet Direct.
Rathbone Global Opportunities
For more general global exposure, Parsons likes the £336m Rathbone Global Opportunities fund, run by FE Alpha Manager James Thomson.
“The appreciation that there is an abundance of high-quality, well-managed, financially strong, innovative companies with pricing power spread around the world has made the investment universe much wider,” Parsons said.
“This fund, managed by James Thomson, has a flexible unconstrained investment mandate which is able to be specific and avoid sectors, such as telecoms and utilities, where the manager currently doesn’t see any investable opportunities.”
“The portfolio comprises between 40 and 60 stocks, all of which have an easy-to-understand business model, are prudent, have flexible management, barriers to entry and catalysts for share price movement.”
“Finally, investors should appreciate that James is not a value investor and will be prepared to pay a premium for a company where he has clearly identified a catalyst for the share price to move.”
The fund has produced top-quartile returns over three, five and 10 years in the IMA Global sector.
Clean share class ongoing charges are 0.8 per cent and the fund is available through Trustnet Direct.
