Going up against Germany later this week, the team still has one more hurdle to complete before it pulls itself out of “the group of death”, but the team has already exceeded expectations. It’s a similar story for Costa Rica which has proved to be the surprise performer in the second hardest group with Italy, England and Uruguay.
Current holders Spain, on the other hand, which were among the favourites before the first ball was kicked, are already out after a surprise loss to Chile and a walloping by the Netherlands.
What the current World Cup standings go to show is that an oft-repeated phrase in the investment world rings true elsewhere as well – past performance is not necessarily a guide to the future.
With this in mind, Chelsea Financial’s Darius McDermott (pictured) reveals three little-known ‘underdog’ funds that he’s tipping to one day be winners.
Evenlode Income
There are a number of core options in the IMA UK Equity Income with Invesco Perpetual High Income, Artemis Income and the newly launched CF Woodford Equity Income fund leading the way. However, McDermott says he expects great things from Hugh Yarrow’s little-known Evenlode Income portfolio, who also has a large-cap, contrarian, value-based approach.
“It’s still quite a small fund compared to some of the bigger funds in its sector,” he said. “In a big sector full of heavyweights, it’s a good core fund. And it’s still small and not well-known.”
The five-crown rated fund, headed up by Hugh Yarrow, has just £55.4m in assets under management but it’s topping the performance tables since its launch in October 2009. The fund achieved the coveted five crown rating from FE at the first time of asking.
It’s one of the top-10 best performing funds in the sector since inception, returning 86.67 per cent. The IMA UK Equity Income sector has made 69 per cent over that time while the FTSE All Share is up 64.95 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund has also managed to deliver stellar returns while keeping a lid on volatility. Over the last three years, Evenlode Income is less volatile than the sector and index, reporting an annualised volatility score of 9.74 per cent.
As McDermott highlighted, the top holdings in the portfolio are populated by core, UK blue-chip companies like Unilever, GlaxoSmithKline and Imperial Tobacco. The manager favours consumer products stocks, with 35.2 per cent in the sector, followed by healthcare and telecommunications, media & technology.
The majority of the fund is invested in the UK, at 81.6 per cent, though Yarrow does have 11.8 per cent exposed to North American companies and a small allocation to Europe.
Evenlode Income has ongoing charges of 1.12 per cent.
CF Miton US Opportunities
An even newer fund McDermott likes the look of is the £60.9m CF Miton US Opportunities fund, run by Hugh Grieves and Nick Ford.
Though the fund has only just eclipsed its first birthday, McDermott likes its pragmatic approach and ability to go anywhere in the US market for growth opportunities.
“I like that it’s a multi-cap strategy. It will have mid and smaller companies [which] I think you’re more likely to get outperformance [from],” he said.
McDermott adds that both managers have strong track records that extend beyond the launch of this fund and benefit from a style agnostic approach. He says this is especially important in the US as value or growth approaches have historically come in and out of favour very drastically.
Since launch, CF Miton US Opportunities has performed in line with the IMA North America sector, returning 12.42 per cent. It’s not constrained to any benchmark as the manager invest across the market cap spectrum, but as a point of comparison the S&P 500 has made 14.36 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
Among the top holdings in the fund are large-cap superstore Wal-Mart and food producer Kraft Foods as well as smaller firms like Watsco – the largest distributor of heating, air conditioning and refrigeration products – and packaged bakery goods firm Flowers Foods.
The fund has ongoing charges of 1.14 per cent.
JP Morgan Emerging Markets Income
Emerging markets have had a tough time of late, though the index has clawed back some of last year’s losses since the start of the year.
A lesser-known fund McDermott rates is the recently launched JP Morgan Emerging Markets Income fund.
“It’s one to watch in the emerging markets space,” he said. “It’s one we think will do really well.”
Manager Richard Titherington has a long track record managing other leading JP Morgan emerging market portfolios, including the JP Morgan Global Emerging Markets Income Trust.
Since inception in July 2012, the fund is up 10.78 per cent, slightly ahead of the MSCI Emerging Markets index, which has returned 9.83 per cent. Peers in the IMA Global Emerging Markets sector gained an average of 8.67 per cent, according to FE Analytics.
Performance of fund vs sector and index since launch
Source: FE Analytics
McDermott points out the fund is going for both growth and income and is currently yielding 4.33 per cent, making it the third highest-yielding fund in the sector behind UBS Emerging Markets Equity Income and the Newton Emerging Income portfolio.
The largest sector weighting in the portfolio is to telecommunications, media & technology stocks, followed by consumer products and basic materials at equal weightings. Nearly half the fund is invested in the Asia Pacific region, while the next highest geographical exposure is to emerging Europe.
The fund has ongoing charges of 0.93 per cent.
