With this in mind, FE Trustnet is taking a look at some of the fund picks offered up by some of our favourite contacts, who have highlighted portfolios specialising in bonds, smart materials, Indian equities and commercial property.
Tomorrow we will pick out a few more of our contacts’ recommendations, but take a look below for the first four.
Rob Gleeson - Old Mutual Global Strategic Bond
Gleeson (pictured), who heads up the FE Research team, thinks Stewart Cowley’s £615.7m Old Mutual Global Strategic Bond fund is worth watching in 2015 despite a recent bout of underperformance, as it will be in a good position if the Federal Reserve lifts US interest rates.
The fund is currently in the IMA Global Bond sector’s fourth quartile over one and three years and is in the third quartile over five. This underperformance stems from Cowley’s belief that rates would rise in the first half of 2014, which failed to occur.
Gleeson said: “The fund has a big bet on US interest rates increasing and will have another poor year if that fails to materialise. However, the Fed has been making noises in that direction recently, despite low inflation, and I don’t think it would take much of an uptick in wage growth for it to make the move.”
“We like the fund for its high conviction stance and hold it in many of our portfolios, because if rates do rise it will be one of the few to benefit; this makes it a great addition to diversify a standard portfolio of predominantly long only equity and bond funds even if it has another disappointing year.”
Over his time on the fund, FE Alpha Manager Cowley has outperformed the average fund in the sector and his Libor one-month benchmark, with a 72.33 per cent return.
In doing this it has been more volatile than its average peer and has a higher maximum drawdown, which shows the loss an investor would have made if they bought and sold at the worst possible moments.
Performance of fund vs sector and benchmark over manager tenure
Source: FE Analytics
Old Mutual Global Strategic Bond has a clean ongoing charges figure (OCF) of 0.64 per cent. It appears on FE Select 100 list of recommended funds.
Tom Becket - RobecoSAM Smart Materials
Becket (pictured), chief investment officer at Psigma Investment Management, has chosen a thematic fund as one of his 2015 picks - the five FE Crown-rated Julius Baer Multipartner RobecoSAM Smart Materials fund, which has been managed by Pieter Busscher since April 2009.
The Luxembourg-domiciled fund invests around the globe in companies that provide technology, products or services linked to the extraction and efficient handling of raw materials, recycling of used resources and innovative alternative materials.
Its top holding is advanced composites company Hexcel, followed by fibre laser and fibre amplifier manufacturer IPG Photonics and US multinational conglomerate 3M.
Becket said: “The central philosophy of this fund is investing in solutions to resource scarcity. As the global population swells and urbanisation continues apace, demand for basic materials is growing (not that you’d believe it from recent price action, but it is true) thereby increasing pressure on a finite resource.”
“The balance of supply and demand will dictate the price of commodities and at certain inflection points consumers will alter their consumption patterns, either by consuming less or using different materials.”
“For evidence, one needs to look no further than the fracking revolution in the US or the increased use of carbon fibre, high strength steel or graphene.”
“We like thematic funds and we have historically made decent profits for our clients by identifying these themes early and investing with conviction.”
“We believe that the recent dislocation in commodity markets has provided an opportunity, as substitutes become optically less appealing when prices are lower.”
Performance of fund vs sector and index over manager tenure
Source: FE Analytics
RobecoSAM Smart Materials has a 1.37 per cent OCF.
Ben Gutteridge - Ocean Dial Gateway to India
Gutteridge (pictured), head of fund research at Brewin Dolphin, has gone for the $77.2m Ocean Dial Gateway to India fund as his pick to "spice up portfolios".
Indian equities have performed strongly in 2014 following the election of Narendra Modi as prime minister. Modi is seen as pro-business and reformist, which has buoyed investor sentiment towards the emerging market powerhouse.
The MSCI India index has risen 24.53 per cent this year while Ocean Dial Gateway to India has gained 45.88 per cent. While past returns are no guide to future performance, commentators such as Gutteridge believe Modi’s reforms could have a long-lasting positive effect on the Indian market and argue that economic growth is set to accelerate in the coming years.
Performance of fund vs sector and index since launch
Source: FE Analytics
Gutteridge said: “Our preferred fund to access this story is the Ocean Dial Gateway to India fund. Ocean Dial is still a relatively unknown fund management company, formed following a management buyout of the Indian investment team from Caledonia Investments.”
“The Gateway to India fund is managed by Sanjoy Bhattacharyya who has an exceptional long-term track record running Indian equity portfolios.”
“His style is best described as GARP; he looks for high quality companies with attractive through-cycle earnings that are available on reasonable valuations. We identified this opportunity at an early stage in the fund’s life cycle, and as such it is still quite small in size.”
Darius McDermott - Henderson UK Property
UK commercial property enjoyed a strong 2014 after investors returned to the asset class in droves. The average fund in the IMA Property sector is up 13.14 per cent and McDermott (pictured), managing director of Chelsea Financial Services, thinks the coming year could see further gains.
He said: “Money pouring into the sector is an indicator it may have another good 12 months, but yields have fallen quite a bit in the past few months as a consequence. Sentiment is good and, outside London, there is still some value.”
“The London residential housing market is a potential bubble candidate (now the most expensive housing market in the world by price per sq ft) and average prices are now about 14 times the median London salary, although I think a crash is unlikely in the near term if the UK economy continues to do well. My instinct is that we still have a few more years of gains before the next crash.”
His preferred fund in this area is Henderson UK Property, which is managed by Marcus Langlands Pearse and Ainslie McLennan. The fund also holds four FE Crowns and has a "recommended" rating from Square Mile Investment Consulting & Research.
The £2.37bn fund has returned 38.64 per cent over the past five years, underperforming the 44.65 per cent average for its sector.
However, it must be noted that the sector also includes funds that invest in property securities, which tend to outperform when interest in the asset class rises, but do not offer the diversification benefits of bricks and mortar.
Performance of fund vs sector since launch
Source: FE Analytics
The managers prefer to own quality properties that are rented by financially sound companies. Their top tenants by income are Royal Bank of Scotland, Sainsbury’s, B&Q, Travelodge Hotels and Centrica.
Henderson UK Property has a clean OCF of 0.85 per cent.
