Even if there are headwinds in the short term, investors who buy and hold – and don’t get overly spooked by bouts of volatility – could be those who see the greatest return in the long run. As the saying goes, it’s all about “time in the market, not timing the market.” Historical data shows that equities have been a long term investors’ best bet for returns, and with that in mind we ask the experts which funds they would recommend for people who are willing to take more risk with their money.
Standard Life UK Equity Unconstrained
Richard Stammers, investment strategist at European Wealth, says that Ed Legget’s Standard Life UK Equity Unconstrained fund is a good option for investors who want a high return, but can deal with possible volatility.
“It’s a terrific fund and we really rate the management,” he said. “The manager, Ed Legget, doesn’t want to be constrained to a benchmark and wants to be able to invest in all areas of the UK market, which is something we want at the moment. That strategy has also paid off as the fund has performed very well.”
Legget took over his £1.1bn fund in April 2008.
According to FE Analytics, it has been the second best performing portfolio in the IMA UK All Companies fund over that time with returns of 172.02 per cent. As a point of comparison, the FTSE All Share has returned 42.27 per cent over that same period.
Performance of fund vs sector and index since Apr 2008
Source: FE Analytics
The fund has taken full advantage of rising market, with top quartile returns in 2009, 2010, 2012 and 2013. However, it has been hit very hard during periods of market weakness because of the manager’s style.
For instance, it was a bottom quartile performer in 2008 and 2011, losing 40 per cent and 20 per cent, respectively.
However, Legget recently told FE Trustnet that the dynamics of his portfolio had changed recently as he was finding better value opportunities in the larger end of the UK market.
Standard Life UK Equity Unconstrained’s clean share class has an ongoing charges figure (OCF) of 1.15 per cent.
Jupiter European Special Situations
Stammers also says that long term investors can afford to increase their allocation to Europe.
He says the Jupiter European Special Situations fund, which is headed up by FE Alpha Manager Cedric de Fonclare, is a good option because while it invests in some of Europe’s leading business, it also has exposure to some of the recently unloved areas of the market.
For instance, while de Fonclare holds the vast bulk of his fund in economies such as Germany, France and Switzerland, he also has pockets of exposure to the Italian, Spanish and Irish markets.
“It’s a first class fund,” Stammers said. “It also invests in areas we want to be right now.”
“There has been a strong focus on high quality companies as Europe has really been going through its dark days. I think that is really a function of the fact that no-one has really wanted to buy anything else.”
“Our view, however, is that we don’t want to be paying those sort of high multiples. The fund should also benefit as growth does seem to be picking up.”
De Fonclare has managed his £869m Jupiter European Special Situations fund since July 2005. Over that time it has been a top quartile performer in the IMA Europe ex UK sector with returns of 122.97 per cent and has beaten its benchmark – the FTSE World Europe ex UK index – by more than 30 percentage points in the process.
It has also beaten the sector in four out of the last six discrete calendar years, the exceptions being in 2012 and 2009 when it was a third quartile performer.
The fund’s OCF is 1.04 per cent.
Artemis Global Income
Another way to take equity risk within a portfolio is to use a global fund.
Justin Oliver, investment director at Canaccord Genuity, admits that Artemis Global Income – which is managed by Jacob de Tusch-Lec – isn’t the most aggressive fund in the global sectors, but says it is a good portfolio to buy and hold onto for the long run.
“It is flexible in style – to have the potential to out-perform in all market conditions; the fund does not apply just a single style bias and adjusts the construction of the portfolio according to the economic cycle, prevailing investor trends and valuations,” he said.
“It is contrarian – avoids crowded stocks by including investments in companies further down the cap curve, and selectively in under-valued and special situations stocks. This enhances opportunities for both yield and capital growth.”
De Tusch-Lec launched his five crown rated Artemis fund in July 2010 over which time it has returned 75.47 per cent while the IMA Global Equity Income sector and it’s the MSCI AC World benchmark have returned 48.91 per cent and 43.63 per cent, respectively.
Performance of fund vs sector and index since July 2010
Source: FE Analytics
The £695m fund is also top quartile over one and three years.The manager currently has a big overweight position in the eurozone and the banking sector. The fund yields 3.9 per cent and its clean share class has an OCF of 0.89 per cent.
Liontrust UK Smaller Companies
Smaller companies have historically beaten their larger rivals over the long. However, if investors want to take on the higher risk that comes with small-caps, but still want to be invested in high quality companies, they should turn to the five crown rated Liontrust UK Smaller Companies fund, which is run by the FE Alpha Manager duo Julian Fosh and Anthony Cross, according to FE Research’s Amandine Thierree.
“Cross and Fosh prefer quality companies; meaning those with healthy finances, a capacity to innovate and a genuine commitment from the management,” she said.
“Businesses of this type are likely to perform well in uncertain environments, as they are assured a regular income stream from patents or licences. The fund can get left behind when markets rally on the back of hot news, although it should keep up if the rise is caused by improving economic fundamentals. However, it can lose significant amounts in the short-term.”
According to FE Analytics, the £216m Liontrust UK Smaller Companies fund has been a top quartile performer – and has beaten its FTSE Small Cap ex IT benchmark – over three, five, seven and 10 year periods.
It has been a second quartile performer over one year as it didn’t rally as hard as its peers in 2013.
However, Cross and Fosh have a very good track record of protecting their investors when markets fall. Their fund lost half the amount of the index in the crash year in 2008 and made a positive return in turbulent year of 2011. It has an OCF of 1.43 per cent.
Lazard Emerging Markets
Emerging markets have been massively out of favour over the last few years. While there are undoubtedly headwinds still facing the developing world, such as the economic slowdown in China, a number of fund managers have been buying emerging market equities while others are fearful.
The majority of experts agree that the long term reasons for holding emerging market equities are intact and Gordon Smith – fund analyst at Kilik & Co. – says the Lazard Emerging Markets fund is a good way to access that growth.
He likes the way in which James Donald – who manages the fund – and his team pick stocks, as they consider macroeconomic and political factors and how each company will impact on the risk characteristics of the portfolio as a whole.
“We believe the combination of qualitative macro-economic and stock specific fundamental analysis is especially important in emerging market equity investing,” Smith said.
“The significant underweight positioning of global investors and valuations that look more compelling than they have done for some time are strong positive signals for contrarian investors with a long-term outlook, willing to bear the potential heightened volatility.”
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The £636m Lazard Emerging Markets fund has been the fourth best performing portfolio in the IMA Global Emerging Markets sector over 10 years with returns of 246.41 per cent and has comfortably beaten the MSCI Emerging Markets index in the process.
It also hasn’t fallen as far as the sector and index over one and three years. The fund has an OCF of 1.07 per cent.
