It’s a hard time to be investing, with equity markets having had a very good run, meaning that few commentators consider them good value.
For anyone looking for good long-term growth potential, the temptation is to go further afield, as the choices of some of our readers illustrate.
We asked the experts to look at your fund picks and this is what they said.
Neptune Russia/Greater Russia
One reader is eyeing up Russia. The country was flagged up by many analysts prior to the Ukraine crisis as one of the cheapest markets in the world, offering a great opportunity for value investors.
Robin Geffen’s £299m Neptune Russia & Greater Russia fund offers concentrated exposure to the country through large caps, mainly in the energy and consumer products sectors.
It has lost 38.5 per cent over three years while the MSCI Russia Large Cap index has lost 34.02 per cent.
Performance of fund vs index over 3yrs
Source: FE Analytics
The ongoing crisis has led to the threat of serious sanctions against Russia or even a possible armed conflict.
Willis suggests it would be better to steer clear of this one.
“That’s quite a punt,” he said. “I can imagine it’s what you would look at if you thought 'how could I double my money in a year?'”
“It’s cheap and the market has got cheaper, but you can argue if you bought it now it could get much cheaper.”
“You look to buy on fear, but sometimes it’s hard to know what’s driving that market. We have no idea what’s going to happen from this position.”
“Nobody would have seen Russia coming into Ukraine and taking control a short time ago, so there’s a lot of uncertainty.”
“It’s also a pseudo-energy play. Even if you aren’t buying into those sectors but are looking at domestic sectors, you can’t avoid that.”
The Neptune fund has 36 per cent in energy as well as 21 per cent in consumer products.
Willis does say, however, that if you have a very long-term view, it’s hard to look past the valuations, assuming you have a stomach for potential losses in the meantime.
“If you are buying to hold for the really long-term, maybe 10 years, it could be a good entry point.”
Aberdeen Latin American Equity
Another reader is looking to Latin America to find undervalued equities.
The £64m Aberdeen Latin American Equity fund has 65.4 per cent in Brazil, 17.8 per cent in Mexico and 6.9 per cent in Chile.
It has protected investors' cash better than the index over the past few years. Over three years it is down 20.76 per cent while the MSCI EM Latin American 10/40 index has lost 26.9 per cent.
Performance of fund vs index over 3yrs
Source: FE Analytics
“The question is, where can you find value in the equity markets?” Willis said. “Developed markets have underperformed Asian markets in particular until QE tapering and a lack of dollar liquidity came along.”
“This has hugely affected certain markets, particularly those that are running current account deficits.”
“You could argue that you are buying Latin America at a good entry point. But they could still underperform over the next 12 months.”
Schroder Income Maximiser/Insight Equity Income Booster
Closer to home, one of our readers is looking at using one of these two funds to boost his income.
Willis says that he has used both of them in the past, but currently uses only the Schroders portfolio.
“It has delivered,” he said. “It’s always targeted 7 per cent, which it has always delivered.”
“It has a large cap value approach,” he said. “Basically you are buying an income fund with a covered call overlay.”
“Ultimately it’s one you buy if you want income. If you want growth, don’t buy it. But if you are looking to maximise your income and want a high target and someone who has consistently hit it with ample capital growth as well, this is the fund.”
Willis explains that the underlying income fund has a large cap, value bias, which leads it to invest in out-of-favour areas.
Data from FE Analytics shows that it has returned 42.43 per cent over three years, almost as much as the 43.57 per cent sector average.
Performance of funds vs sector and index over 3ys
Source: FE Analytics
This is especially impressive as the fund has to give up capital growth potential to gain its high yield of 7.14 per cent.
Writing covered calls involves selling the option to buy stocks when they rise above a certain point, meaning that you trade the income from the fees you get for the potential for the stock to rise above a certain point.
By comparison, the Insight fund has made 31.19 per cent over the same time, although it yields a substantially higher 8.63 per cent.
Willis says he prefers the Schroders fund because of its track record of hitting its targets, although the Insight fund is also a good choice.
“Insight pays monthly and has a slightly higher target,” he said. “It also has a good manager with a good record over the longer term.”
Ecclesiastical UK Equity Growth
Ecclesiastical is a fund house with an ethical focus and strong ties to the church. Willis says that the funds usually suit investors who have a strong desire to invest ethically.
“The problem with ethical investing is that you may not agree with the definition of ethical,” Willis said.
However, FE data shows that this Ecclesiastical fund has an excellent track record in purely financial terms.
The fund has been a top-quartile performer in each of the last five years, a run that has earned manager Andrew Jackson an FE Alpha Manager award.
“Ecclesiastical is known for having a good record,” Willis said. “If you are looking for that style they are the people.”
This £160m fund, which has five FE Crowns, has been managed by Jackson since 2003.
It is now top quartile over three, five and 10 years in the highly competitive IMA UK All Companies sector.
Over three years it is up 83.38 per cent to the sector average of 39.84 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Like all of the most successful funds in the sector, it has maintained a considerable weighting to small and mid cap companies in recent years.
It currently has 44.19 per cent in the FTSE 100, 33.74 per cent in the FTSE 250 and 19.78 per cent in small caps.
Large cap miner Rio Tinto rubs shoulders with small cap tech stock Wandisco and mid cap Howden Joinery in its top 10.