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Our readers’ 2015 fund picks under the spotlight: Part 2

16 January 2015

FE Trustnet analyses the open-ended funds that our readers are scoping out to buy this year.

By Daniel Lanyon,

Reporter, FE Trustnet

We asked FE Trustnet readers what funds they were looking to invest in this year. With a flurry of activity you replied and now, as promised, we ask the experts for their opinions.

Some of the most popular picks are unsurprisingly also some of the most well-known funds amongst UK investors generally and, notably, mostly active managers as the previous part of this series noted.

However, as this second article shows, there are also some smaller funds as well as one passive vehicle that made the list.

Here we take an in-depth look at the four remaining funds that were most popular with those of you who wrote in.


M&G Recovery

First up is Tom Dobell’s (pictured) £5.31bn M&G Recovery fund. It lost 9.59 per cent last year, underperforming both the average IA UK All Companies fund and its FTSE All Share benchmark by around 10 percentage points.

The fund has had faced a tough few years relative to its peers and is currently in its sector’s fourth quarter over one, three and five years.

Dobell has managed the fund since March 2000 and since then its track record looks a lot better with returns of 128.01 per cent – only marginally less than the lowest first quartile fund.

Performance of fund, sector and index in since March 2000

     
Source: FE Analytics

Mike Deverell, investment manager at Equilibrium, sold the fund last year and says he has no plans to buy back in.

“It is a recovery style and so those things do come in and out of fashion but certain other funds that have a similar style have done really well recently,” he said.

“The behaviour you would expect from a recovery or value fund recently is that it would have done well. Things like Schroder Recovery or the CF Miton UK Value Opportunities funds have but this one hasn’t.”

Performance of funds, sector and index since March 2013



Source: FE Analytics


Deverell says value has not done badly recently as an investment style and attributes part of M&G Recovery’s underperformance to its commodity exposure as well as to its size.

“They have Tullow Oil, which has always been one of their biggest holdings and has lost about 60 per cent over the past year,” he explained.

“There are those sector and stock specific bets that they have got wrong but ultimately I just think it is too big for a recovery fund.”

“If a fund is behaving in a different way to you’d expect to or underperforming in a period when you’d expect it to do well then that is the big red flag.”

The fund has a clean ongoing charges figure (OCF) of 0.9 per cent.


Henderson UK Property

In contrast, Deverell highly rates this £2.6bn fund which invests in ‘bricks & mortar’ UK property.
Top holdings such as 440 Strand, Robin Retail Park in Wigan and Capital Park in Cambridge have helped co-managers Marcus Langlands-Pearse and Ainslie McLennan to beat the FTSE All Share over the past year.

However, the fund has failed to beat the IA Property sector average over one, three and five years with consistent third-quartile returns.

Performance of fund and sector over 3yrs



Source: FE Analytics

Bullish on the sector as a whole, Deverell says it is his most favoured asset class at the moment.

“We will always invest in direct property funds rather than property share funds, which can be very volatile like equities and so don’t give you diversification. This is a very good fund and has performed well, with a good yield. Void rates are low,” he said.

“Although, a slight concern is that they are merging the £463m Old Mutual UK Property fund into in to it which is not a big fund relative to its size but it doesn’t have as good fundamentals with a higher void rate.”

Cash is currently at 14.5 per cent of the portfolio.

The fund has a clean OCF of 0.85 per cent and a current yield of 3.5 per cent.



GLG Japan CoreAlpha (USD Hedged)

Japan still divides investors but FE Alpha Manager Marcus Brookes highly rates this fund for those looking for exposure to the Japanese market.

The co-manager of the Schroder MM range says the fund’s currency hedge makes it particularly useful as the yen is increasingly volatile.

“When exploring the Japanese equity market for an appropriate fund to invest in, there has historically been a focus in the sector on mid-cap growth funds. Our preference when investing in the region is for a large-cap value fund, of which there are surprisingly few suitable candidates,” Brookes said.

“GLG fills this requirement extremely well, with Steve Harker – the fund manager – having a very good value track record and a natural contrarian style.”

“This contrarian approach suits our philosophy and makes him the standout fund for us in this space. The fund also provides various hedged share classes, which gives an ease to investing and has been particularly useful given the yen’s movement, although we are currently unhedged.”

Harker, also an FE Alpha Manager, has returned 43.8 per cent since taking over the fund in 2006, beating both the sector and index over this period.

Performance of fund, sector and index since 2006



Source: FE Analytics

The fund has a clean OCF of 0.96 per cent.


L&G Global Health & Pharmaceutical Index

Healthcare, pharmaceuticals and biotech have been one of the best places to be invested over the past few years with this passive vehicle up 91.16 per cent over three years, broadly in line with the FTSE World Healthcare index – which it tracks - but significantly ahead of the IA Global sector average.

Performance of fund, sector and index over 3yrs



Source: FE Analytics


However, IG chief market strategist Brenda Kelly recently said investors should beware a coming correction in healthcare and biotech stocks.

“You are taking a risk that there will be a reward that will go along with the risk. They need to buy it from a longer-term buy and hold stance, not as a shorter trade. There is a great deal of profit to make and depending on your investment horizon and tolerance for risk it is important to have some exposure,” she said.

“However, you certainly wouldn’t want a lot of exposure of your portfolio to such a niche and volatile sector.”

One bull on the sector is FE Alpha Manager Neil Woodford but the manager prefers early stage investment in unquoted companies or large positions in the industry’s giants such as GlaxoSmithKline and Johnson & Johnson.

Largest holdings in this £145m fund include Johnson & Johnson and Novartis.

The fund has a clean OCF of 0.31 per cent.
 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.