Ben Gutteridge, head of fund research at Brewin Dolphin, has highlighted five funds covering the major investment markets that he thinks could be worth including in investor portfolios.
In the below article, FE Trustnet gets under the bonnet of Brewin Dolphin’s 2015 fund picks.
UK – Majedie UK Income
Brewin Dolphin continues to have a positive view on the UK stock market, driven by its “compelling” dividend yields, internationally sourced revenues and reasonably attractive valuations.
However, it has recently trimmed back exposure to the UK given the market’s high exposure to energy stocks, which have sold off strongly in light of the plunge in the oil price.
Gutteridge said: “For investors wishing to express these views in a UK equity fund, whilst also targeting yield, we recommend the Majedie UK Income fund. The fund sold the majority of its oil & gas exposure in early summer this year, following a strong first half. This has benefited relative performance in the second half.”
“Elsewhere the bulk of the funds aggregate revenue is focused in the UK, where falling energy prices should serve to further dampen inflationary headwinds, boosting consumer performance.”
Majedie UK Income, managed by FE Alpha Manager Chris Reid and Yuri Khodjamirian, sits in the IMA UK Equity Income sector’s first decile since launch in December 2011 with a 75.47 per cent return. It’s also returned more than double the FTSE All Share over this period.
Performance of fund vs sector and index since launch
Source: FE Analytics
It has been more volatile than both peer group and benchmark since launch, according to FE Analytics. However, it’s in the second decile for maximum drawdown, which shows the loss over the worse period for investment, and is the fifth highly ranked fund in the sector for alpha generation.
Majedie UK Income has a clean ongoing charges figure (OCF) of 0.78 per cent and yields 3.67 per cent.
US – Dodge & Cox US Stock
Brewin Dolphin says that one of its “most rewarding” asset allocation decisions has been its longstanding overweight to US equities and it sees no reason to change this as 2015 approaches.
Gutteridge argues that “talk of valuation excess is overdone”, seeing US equities are being fairly priced with attractions relative to other asset classes being highly compelling.
“Our preferred means to achieve exposure to the US stock market is via the Dodge & Cox US Stock fund. This strategy employs a disciplined valuation approach, buying companies undergoing some degree of turmoil but trading on commensurately cheap ratings,” he said.
“The Dodge & Cox name might be relatively new to UK investors but they are a formidable brand in the US. Of considerable interest too was the extremely low level of staff turnover. This is clear evidence of the collective support for how the strategy is managed, and the firm’s ability to retain talent.”
The $240.8m fund, which is managed by the firm’s investment policy committee, launched in the UK in December 2010 and since then has outperformed the average fund in the IMA North America sector and its S&P 500 benchmark.
Performance of fund vs sector and index since launch
Source: FE Analytics
It’s currently overweight the information technology, financials and consumer discretionary sectors with Microsoft the largest holding.
Dodge & Cox US Stock has a 0.70 per cent OCF and holds four FE Crowns.
Japan - Schroder Tokyo (Sterling Hedged)
The investment management house is going into 2015 with a positive outlook on Japan’s equity market, based on the belief that the “unparalleled cohesion” demonstrated between prime minister Shinzo Abe and the Bank of Japan will continue to weaken the yen and lift stocks.
“For investors wishing to participate in this trade we would highlight the Schroder Tokyo fund, and given our expectation for a weaker currency would recommend purchasing the hedged share class,” Gutteridge said.
“The fund is managed by a veteran of the industry, Andrew Rose, who has over 34 years’ experience in the asset class.”
“He has produced a very consistent return profile over this career, generating strong relative performance in a variety of market environments.”
“The manager currently shares our positive outlook, and has therefore positioned the fund with a moderately pro-cyclical bias through overweight positions in the industrial and auto sectors.”
Rose is highly regarded by analysts, thanks to a methodical process that seeks companies which are disliked by the market over the short term but have the potential to surprise on the upside over two to three years.
His fund hold an ‘AAA’ rating from Square Mile, which describes Rose as “one of the most experienced Japanese equity managers in the industry”.
Schroder Tokyo has an OCF of 0.85 per cent. The fund’s hedged share class launched in July 2013.
Performance of fund vs sector and index since launch
Source: FE Analytics
Europe – Edinburgh Partners European Opportunities
European equities have become unloved once more, after asset allocators unwound their overweights as the region became subject to renewed political and economic headwinds. Brewin Dolphin actually lifted its overweight to Europe recently, highlighting the attractive valuations and the European Central Bank’s progress in healing the banking system.
“We believe the Edinburgh Partners European Opportunities fund offers an attractive exposure to the value style,” Gutteridge said.
“The fund stands out compared to other value managers offering a more balanced sector exposure while avoiding the imminent political risks of Greece and Spain. While the fund is exposed to economic recovery, it is a consistent performer and has historically offered decent protection in falling markets.”
The Dublin-domiciled fund is managed by Dale Robertson and, as the graph below shows, has significantly outperformed its peer group and MSCI Europe ex UK benchmark since launch in September 2005, gaining just over 84 per cent. The five crown-rated fund was first quartile in 2011 and 2013, as well as over 2014 to date, but made bottom-quartile returns in 2012.
Performance of fund vs sector and index since launch
Source: FE Analytics
Edinburgh Partners European Opportunities has a total expense ratio of 1.34 per cent
Fixed Income – AXA Short Duration US High Yield
Brewin Dolphin’s fixed income collectives team are tipping Carl Whitbeck's AXA US Short Duration High Yield fund, as this is seen as a more defensive strategy within a ‘riskier’ part of the fixed income market. Bonds are expected to come under pressure next year as the Federal Reserve starts to lift interest rates.
Gutteridge explained: “The fund will exhibit lower levels of volatility than a typical high yield fund due to the shorter maturity of the bonds it holds. In that regard the mandate is less likely to suffer capital losses as a result of any rise in interest rates. There is still a reasonable degree of corporate and liquidity risk within this strategy but again due to the short duration, but also the ‘higher quality’ investment approach, at least part of this has been mitigated.”
He adds that US high yield bonds could be at an attractive entry point, given their yield has widened to around 6 per cent against 4 per cent in Europe, although the likelihood of further volatility might mean investors want to drip feed into funds or wait a while longer.
AXA US Short Duration High Yield has outperformed the IMA Global Bonds’ average member since it launched in April 2010 with a 22.07 per cent return, although it is underperforming over more recent time frames owing to the relative weakness of US high yield bonds.
Performance of fund vs sector since launch
Source: FE Analytics
The fund has a 0.76 per cent clean OCF and yields 4.60 per cent.
