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Marcus Brookes’ 2014 ISA fund picks

24 March 2014

Schroders' Marcus Brookes tips four funds he is using across his multi-manager range that retail investors may wish to consider buying for their own portfolios.

By Thomas McMahon,

News Editor, FE Trustnet

Majedie UK Income is Marcus Brookes’ top pick for UK equity income this year, as the end of ISA season approaches.

ALT_TAGThere are just two weeks left to use up all of the £11,520 allowance – or as much as you can afford – and leaving it late could end up with you missing the deadline thanks to paperwork problems.

Brookes has picked four funds he uses on the Schroder MultiManager range,

Following the announcement in yesterday’s budget that the ISA limit will be increased to £15,000 in 2015, Marcus Brookes Head of Multi-Manager at Schroders, shares his views on a number of sectors and some of the funds available for ISA season.


UK Equity Income


“Funds always tend to be categorised nowadays with labels such as growth, value, quality and recovery, but we think the perfect way to describe Majedie UK Income managed by Chris Reid is as an ‘Improvement Fund’,” Brookes said.

“In the manager’s own words: “This is a conviction based active stockpicking fund that through detailed analysis and experience is looking to find companies that have settled on a course of massive improvement and, in doing so, leapfrog their competitors”.”

“Philosophy aside, from our perspective, it is the depth and granular detail of analysis that underpins the appeal of this fund.”

“However, when you set about running a fund in a fairly distinctive way compared to your direct competitors – as Chris Reid has – you take on board the risk/opportunity of potentially generating outsized relative returns.”

Performance of fund vs sector and index since launch


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Source: FE Analytics

Data from FE Trustnet shows the fund has been a top decile performer since launch in December 2011, gaining 68.82 per cent in total return terms.

The fund is currently yielding 3.54 per cent, and concentrates on the mid-cap area of the market, with 44.6 per cent in the FTSE 250. The FTSE 100 accounts for 33.8 per cent of the fund, while 15 per cent is listed abroad.


The £266m fund has 14 per cent in the life insurance sector, however, which could be a drag following last week’s budget.

The reforms announced are likely to see a huge fall in the number of investors choosing annuities when they retire, and the share price of Phoenix and Aviva, two top 10 holdings in the Majedie fund, were both hit last week.

Reid told FE Trustnet last month
that non-bank financials were one of the best ways to play the UK recovery.

He also has significant weightings to aerospace and defense, mining and oil and gas. Ongoing charges are just 0.78 per cent on a clean share class basis and the fund is available through Trustnet Direct.


European recovery

For investors looking to play the recovery in Europe Brookes likes Invesco Perpetual European Equity, managed by Jeffrey Taylor and Stephanie Butcher.

“The fund managers are value-focused; unafraid of making contrarian bets and rotating in and out of favoured areas as the cycle unfolds,” Brookes said.

“The fund has seen past the last few years headlines of woe and continued to pick up distressed assets when at their most hated prices.”

“As sentiment has moderated to something more balanced than outright panic, those hated assets have been rerated.”

“The progressive nature of this fund means that profits are being reinvested into new areas of value continuously.”

“Meanwhile, Taylor’s proven stock picking expertise should also protect the fund from “value traps” and duds.”

Data from FE Analytics shows that the £1.25bn fund has done extremely well in the recent re-rating, and is up 30.74 per cent over a year to the sector’s 15.52 per cent. It is slightly more volatile than the sector average, however.

Performance of fund vs sector over 1yr

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Source: FE Analytics

“The portfolio is concentrated in around 50 stocks and its value bias means that it may disappoint if this style is weak, but we feel it is set fair for a while yet particularly if Europe continues to recover,” Brookes added.

Clean share class ongoing charges are 1.22 per cent.


Japanese growth

Many professionals expect the Japanese recovery to continue as the current government’s reforms kick in, including Brookes.

“Japan has been a poor place for investing since 1989 and the lost decades that followed, leaving the stock market looking good value,” Brookes said.

“The GLG Japan CoreAlpha is a fund we like to benefit from this. It is a Japanese equity fund managed by Stephen Harker that focuses on large caps and on value.”

“The fund is contrarian by nature and unafraid to express its views with heavy sector over- and underweights.”

“We currently like the fund as we think Japan will continue on its path of economic reforms and valuations there still look to be discounted in comparison with other major markets.”


FE Alpha Manager Stephen Harker’s £1.2bn fund is one of the more volatile in the sector, and has a tendency to fall further in down markets. However, it has consistently outperformed when markets rise.

Performance of fund vs sector and index over 5yrs

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Source: FE Analytics

The fund has returned 44.53 per cent over the past five years as the average fund has made 41.82 per cent. It has ongoing charges of 1.13 per cent.


Bonds


“We are not keen on fixed income and haven’t been for some time now. We think bonds on both the government and corporate fronts look expensive and as a result all of our multimanager funds are extremely underweight,” Brookes said.

“However, M&G Optimal Income managed by Richard Woolnough remains our top pick. It currently has a strong bias towards investment grade corporate bonds, and they account for around half its portfolio, but it also holds government bonds, high yield credit and even some equities.”

M&G Optimal Income remains the country’s top pick when it comes to fixed income. It has taken in roughly £4.7bn in new money this year, £2bn more than the next most popular fund – M&G Global Dividend.

FE Alpha manager Richard Woolnough’s portfolio is now at £18,.8bn in size. It has 50 per cent in investment grade bonds, 29.6 per cent in high yield and 23.4 per cent in government debt. Woolnough also has 9 per cent of the fund in equities, reflecting the manager’s belief that yields are more attractive in some areas of the stock markets. The fund has ongoing charges of 0.91 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.