However, given we have reported on numerous investment outlooks for 2015 from leading industry experts over the last month or so, we at FE Trustnet thought we’d give it a go and each pick a fund that we are backing to do well over the coming 12 months, with our reasons behind choosing it.
Like with any article on the website, we welcome any feedback so please don’t hesitate to comment or drop us an email about our choices. Of course, it goes without saying that these picks shouldn’t be taken as advice – they are just our own humble opinions.
Joshua Ausden – Neptune Russia & Greater Russia
To kick things off, editor Josh Ausden has gone for Robin Geffen’s £185m Neptune Russia & Greater Russia which, like any portfolio linked to Russia or the oil price, has had a very tough year in 2014, losing 46 per cent.
Performance of fund vs index in 2014
Source: FE Analytics
Ausden started putting money into the fund a few weeks ago and while he is happy to stomach the volatility, he has chosen the fund on extreme valuation grounds.
“I’ve got to go with my instincts and go with a Russia fund,” Ausden said.
“I explained recently that I’d bought into the battered market, which has so far backfired; however, given the cheapness of the market and the panic selling that has ensued, I think it’s got the potential to rebound strongly next year.”
“There are a number of caveats of course. It’s unlikely Russia funds will perform well if the oil price keeps falling and sanctions from the West persist. However, I’m a big believer in the ‘buy when there is blood on the streets’ theory and as a result I’m going for Neptune Russia & Greater Russia.”
“Robin Geffen (pictured) is one of the few genuine Russian specialists and though he’s had a very tough period since the financial crisis, there are signs that some of his high conviction bets are paying off. Here’s hoping in 2015 Russia is another.”
Daniel Lanyon – Baillie Gifford Japanese
Reporter Daniel Lanyon has chosen the Baillie Gifford Japanese fund and, like Ausden, his reasoning is due to his belief that Japanese equities will come roaring back in 2015 after a tough year.
“Japan divides investors with most detractors saying something along the lines of ‘why bother?’,” Lanyon said.
“However, with the options for growth limited in other regions and asset classes– and as part of a balanced portfolio – Japan offers a compelling story. For exposure I have chosen the £600m Baillie Gifford Japanese fund co-managed by Sarah Whitley and Matthew Brett, who have been managers of the fund since 2007 and 2008 respectively.”
Lanyon, like the rest of us, thinks there is a genuine lack of attractive opportunities across the market but likes Japan as it is an area which is delivering earnings growth, as the Bank of Japan is continuing with its unprecedented quantitative easing programme and as pro-growth prime minister Shinzo Abe has just won a super majority in the recent snap election.
“2013 was certainly one of the best years to be in Japan over the past decade with the past 12 months too familiarly sluggish and with this fund underperforming but I expect this to change for both the market and Baillie Gifford Japanese,” Lanyon said.
“The likelihood of an end to the two-decade-old economic impasse seems to have made further ground with a ramped up quantitative easing programme and low oil price a likely boon to stock markets.”
The five crown rated fund has been a top decile performer in the IMA Japan sector over five years, but has struggled more recently and is lagging in the third quartile over 12 months with losses of 0.79 per cent.
Performance of fund versus sector and benchmark over 5yrs
Source: FE Analytics
Lanyon likes the fact that Whitey and Brett are very experienced in the Japanese equity market, but says there is one potential danger associated with the fund.
“To hedge or not to hedge is the big question with Japan with the volatility of the yen a potential killer of returns and these managers’ unhedged portfolio is a risk. However, the relatively low fees – 0.66 per cent - are extremely compelling and – not including trackers – it is the cheapest in the sector.”
Jenna Voigt – Schroder ISF Global Recovery
Jenna Voigt, investment and corporate content editor, isn’t taking a regional bet this year and instead is opting for Nick Kirrage and Kevin Murphy’s Schroder ISF Global Recovery fund as it offers exposure to undervalued stocks around the world.
“Unlike the vast majority of global equity funds which are betting on further growth from the US – and true to their valuation-based process – the Schroder ISF Global Recovery fund has the highest proportion of its assets invested in battered Europe,” Voigt said.
“Given the duo’s bottom-up, valuation-based strategy, this will be largely because they have found more attractively valued stocks in Europe than other parts of the world and should not be looked upon as a macro call on a wider European recovery.”
She also likes the fact that Kirrage and Murphy are sitting on a chunky cash weighting of close to 20 per cent, as they are well-positioned to snap up undervalued opportunities if volatility persists over the start of the year.
Schroder ISF Global Recovery was launched in October 2013 and is up 22.48 per cent in sterling terms over that time, beating its MSCI AC World benchmark in the process.
Performance of fund versus index since Oct 2013
Source: FE Analytics
Voigt has also chosen a value fund as investors have been piling into defensive, dividend-paying blue-chip companies for safety as macroeconomic headwinds have picked up.
“This shift is driving valuations up among these core companies and, as we saw from the likes of Tesco this year, investors can’t always rely on dividends just because a company has paid them for a long time.”
She added: “Of course Tesco’s fall from grace has also presented an opportunity for managers like Murphy and Kirrage.”
Gary Jackson - Neptune European Opportunities
News editor Gary Jackson has gone for the £595.9m Neptune European Opportunities fund, headed up by FE Alpha Manager Rob Burnett, as he thinks European equities could finally turn around.
“I’m not going to act like I have discovered a hidden gem here or found the perfect fund for a recovering Europe on the back of exclusive research. In fact, it’s often difficult to get experts to suggest a different portfolio for an improving outlook on the continent.”
Burnett is a highly regarded manager in the European equity space, with Neptune European Opportunities sitting in the first quartile since he took over in May 2005 after a 138.94 per cent gain, beating both the IMA Europe ex UK sector and its benchmark in the process.
Performance of fund versus sector and index since May 2005
Source: FE Analytics
It has struggled more recently, however, but Jackson says this the major reason why he has picked it.
“Burnett is positioned for a recovery in the eurozone economy - which so far has failed to come through,” he explained.
“Close to 30 per cent of his portfolio is in the European banking sector – Italian banks such as Intesa Sanpaolo and Banca Popolare Di Milano are found in the top 10 – which has suffered as investor sentiment towards the region tanked but would be natural beneficiaries of any improvement in the outlook.”
Jackson does admit, however, that whether Neptune European Opportunities has a great 2015 or not depends on investors finally overcoming their aversion to European equities.
He believes there are a number of reasons why this might be the case next year. Firstly, they he says Europe remains one of the few pockets of value left within global equity markets.
Secondly, growth expectations in European remain incredibly depressed which has led to low earnings outlooks for its companies, but he thinks a lot of bad news already priced into European equities so there’s potential for significant gains if earnings outlooks are lifted from their low starting points.
He added: “Thirdly, the European Central Bank is widely tipped to launch full-blown quantitative easing next year. While it’s open to debate how effective this will be with government bond yields at such low levels, what it will do is give bondholders the chance to sell to the central bank and reinvest in the stock market.”
“This would provide a strong upside for European equities.”
Anthony Luzio – First State Indian Subcontinent
Production editor Anthony Luzio has gone for the five FE Crown-rated First State Indian Subcontinent fund.
While Indian equities and the fund had a stellar year last year – the First State Indian Subcontinent was up more than 50 per cent in 2014 – Luzio is confident that it will build on those gains over the coming 12 months.
Performance of fund versus index in 2014
Source: FE Analytics
“India had a fantastic 2014 thanks to the election of the pro-business prime minister Narendra Modi, who has pledged to remove red tape and invest in the country’s infrastructure and manufacturing industry.”
“Central bank governor Raghuram Rajan has also won plaudits for cutting the current account deficit and bringing inflation under control.”
“Another large tailwind is the falling price of oil – petroleum products make up a third of all India’s imports and it is estimated that if prices stay where they are, it could add as much as one percentage point to its GDP in 2015.”
“While some commentators say equity prices look expensive after their recent strong run and that India may struggle to deliver the same level of outperformance of the past year, there are few more attractive destinations for my money at the moment.”
Alex Paget – M&G Recovery
Even though it is an election year and volatility is likely to be a persistent factor, I’m going with a UK fund – namely Tom Dobell’s M&G Recovery fund which, as many of our readers will know all too well, has had a tough few years and Dobell has come under increasing scrutiny from industry experts and the press.
It was bottom quartile and underperformed its benchmark in 2012 and 2013. Last year, when the FTSE All Share made a slight positive return, M&G Recovery was bottom decile with losses of more than 9 per cent.
Now, I’m sure there will be many people who disagree with my choice and it is true that my reasoning for picking it isn’t too scientific as it comes down to fact that Dobell really is due a turnaround.
As people have said in the past, fund managers don’t just lose their ability overnight and it is no fluke that his fund outperformed both the sector and index in each year between 2000 and 2010. Those returns mean M&G Recovery has still comfortably outperformed since Dobell took over in March 2000.
Performance of fund versus sector and index since March 2000
Source: FE Analytics
Firstly, Dobell is a long-term buy and hold manager, due to his focus on value/recovery stocks. So, the fact that he had such a poor year last year suggests that the majority of his holdings are still very lowly valued.
Also, a lot of Dobell’s underperformance last year will have stemmed from his high weighting to oil stocks, given that the oil price fell 40 per cent in 2014. He has very high weightings to BP and Shell, as well as more satellite positions in the likes of Nostrum Oil & Gas, Tullow Oil and African Petroleum.
Of course I have no idea when the oil price will rebound and there a number of reasons why it could stay lower for longer, but you only have look at petrol prices at the moment to see that something has to give sooner, rather than later.
Finally, money has poured out of M&G Recovery over recent years due to its poor returns – its AUM is £5.3bn, having peaked at £8.1bn in 2012 – so Dobell should now have a far greater level of flexibility to implement his views.
