Today’s story may not be tomorrow’s. An investor in a Latin America fund in 2004 would have been delighted with their choice three years later, but the benefit of hindsight tells us that the market was in an almighty bubble.
While being active is crucial, it’s always good to have a core group of funds that you can rely on through thick and thin.
There is always the risk of a manager leaving, as Neil Woodford and Richard Buxton’s recent shock departures have proven; however, there are a small suite of funds that have delivered the goods for years and in some cases decades.
Here, we ask industry professionals to highlight the first name on the teamsheet when they construct a portfolio.
Guinness Global Equity Income
Fund of funds manager Steven Richards, who runs the £36.6m Thesis Optima Balanced portfolio, highlights the little-known Guinness Global Equity Income fund as one he expects to hold for many years to come.
As well as having a tried-and-tested process, unlike many of their rivals he doesn’t expect managers Ian Mortimer and Matthew Page to suffer capacity constraints.
“Successful funds face that double-edged sword of flows following performance and potentially hindering in the future,” he said.
“The Guinness Global Equity Income fund however, at just over £60m, should not suffer this fate for many years to come.”
“The managers have developed a quantitative approach to screen the global equity universe for high quality companies from which to build a portfolio with a sustainable and growing dividend stream.”
“After applying the filter, the managers’ focus only on companies that have some kind of sustainable competitive advantage to maintain this hurdle, and valuations that appear cheap historically or relatively.”
“As a result, we believe in the Guinness Global Equity Income as a fund where we know exactly what we’re going to get. Overall their process is robust, repeatable and scalable and, in our view, this should help the fund maintain a consistent outperformance over the long run,” Richards said.
Guinness Global Equity Income has a strong track record since its launch in December 2010, beating the IMA Global Equity Income sector average and MSCI World index with returns of 41.51 per cent.
It has also been less volatile over the period, has a lower max drawdown and a decent starting yield, at 3.2 per cent.
Performance of fund, sector and index since launch
Source: FE Analytics
The fund has a bias towards developed markets, though the managers do have direct exposure to emerging markets.
China Mobile is a number one holding, with emerging markets currently accounting for close to 15 per cent of assets.
“As an added bonus, we have access to their ‘early investor’ Z share class which has a low AMC of just 0.25 per cent,” Richards added.
For retail investors, ongoing charges are 0.74 per cent.
CF Ruffer Total Return
Alex Brandreth, a deputy fund manager at Brown Shipley, likes the softly-softly approach of FE Alpha Manager Steve Russell, manager of the £3bn CF Ruffer Total Return portfolio.
The manager’s ability to not only protect but make money during down markets is hugely attractive, he says, and gives a portfolio a great layer of insulation.
“I have held the CF Ruffer Total Return fund for a number of years. It has an excellent track record over the longer term and offers a degree of stability in a portfolio,” he said.
“In a world where fixed income yields are low and correlation between asset classes has increased, Brown Shipley is looking for alternative products that can help diversify a portfolio and protect capital should markets turn for the worse.”
Performance of fund vs sector and benchmark over 7yrs
Source: FE Analytics
“The fund demonstrated the ability to protect capital in the two most stressed calendar years in recent memory – 2008 and 2011.”
The fund is totally unconstrained, but officially has a composite benchmark, split 50/50 between the FTSE All Share and FTSE British Government All Stocks indices.
Russell believes the ultra-loose policies of central banks will eventually result in high levels of inflation and has high weightings to inflation-linked bonds and gold as a result.
He is wary of valuations across developed and emerging markets, though is very optimistic about Japan, which explains the fund’s 16 per cent weighting.
CF Ruffer Total Return has ongoing charges of 1.23 per cent.
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Threadneedle UK Equity Income
“One of the first names on our ‘teamsheet’ is Threadneedle UK Equity Income,” said Alexander George, head of fund research at Dart Capital.
“The fund really is one for all seasons with the fund managers, Richard Colwell and Leigh Harrison, adeptly combining holdings in companies offering the potential for strong dividend – and subsequently capital – growth, be it through structural growth or cyclical recovery opportunities, with stocks which offer compelling value and are held more for their high free cash flow generation.”
“This approach gives the fund more balance than many of its peers in the UK equity income space and makes it a core holding across our client portfolios.”
As well as consistently delivering top quartile returns, the £3.1bn Threadneedle UK Equity Income fund has one of the lowest annualised volatility scores of any in the sector over three and five-year periods.
Risk/return of UK Equity Income funds over 5yrs
Source: FE Analytics
It has a bias towards quality, defensive stocks and sectors, including the likes of AstraZeneca, GlaxoSmithKline, Unilever and Shell in its top-10.
However, Colwell and Harrison attempt to add value with smaller holdings further down the portfolio.
The fund has ongoing charges of 0.86 per cent and is yielding 4 per cent.
FE Trustnet highlighted Harrison as one of the managers who has arguably beaten Woodford at his own game in recent years, in an article earlier this year.
Schroder Recovery
Ben Williams, investment manager at Saunderson House, thinks the strict deep value approach of Nick Kirrage and Kevin Murphy’s Schroder Recovery portfolio makes it the ideal long-term holding.
“We rate them as two of the best value/recovery investors in the UK,” he said.
“The managers focus on unloved, deeply out of favour companies that have suffered set-backs and are trading at significant discounts to fair value, but where their fundamental long-term businesses remain intact.”
The managers' effective stockpicking has led the Schroder Recovery fund to the top of the performance tables over five and 10-year periods. FE data shows it’s top decile in the IMA UK All Companies sector over the past decade with returns of over 200 per over.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
It’s also well ahead of its peers over three and five years. Murphy and Kirrage are currently finding value in unloved megacap sectors, such as food retail, banks, insurance and oil & gas.
They bought heavily into cyclicals between 2009 and 2011 when they were disliked by the market, but are now taking profits after a stellar period of performance.
“While this style of value investing can fall out of favour with the market during certain phases over the market cycle, we believe it capable of generating significant outperformance over the long term,” said Williams.
“We have been trimming positions recently due to exceptionally strong performance but the fund remains one of our largest positions and we expect to hold it for some time.” Schroder Recovery has ongoing charges of 0.77 per cent.
CF Lindsell Train UK Equity
John Monaghan, senior investment research analyst at Square Mile, likes the high conviction, low-turnover approach of FE Alpha Manager Nick Train – one of the UK’s highest rated stockpickers.
As well as being a top decile performer since its launch back in 2006, the £1bn CF Lindsell Train UK Equity fund has beaten its IMA UK All Companies sector average and FTSE All Share benchmark in every calendar year.
“Lindsell Train truly have a differentiated investment approach and are one of the very few managers to adopt a process that involves such lengthy time horizons,” said Monaghan.
“Turnover levels are so low that some may describe activity as indolent but the lack of trading is an inherent feature of the strategy.”
Performance of fund, sector and index since launch
Source: FE Analytics
“The emphasis is on truly exceptional businesses that are persistently undervalued by the market. Such companies tend to have high rates of return on capital and the reinvestment of profits into the business can compound into returns that can be impressive over the long term.”
“Although this is a concentrated portfolio of 20-30 stocks which can look vastly dissimilar to the FTSE All Share index, the approach has yielded a highly impressive set of returns over a range of time periods.”
High conviction positions include Unilever, Diageo and Reed Elsevier, which have a combined weighting of over 25 per cent.
The five crown-rated fund has ongoing charges of 0.8 per cent.
