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The funds Adrian Lowcock is buying for his 2015 ISA

12 February 2015

The head of investing at AXA Wealth talks FE Trustnet through four funds he’s been buying ahead of the ISA tax-free deadline.

By Lauren Mason,

Reporter, FE Trustnet

AXA Wealth's head of investing Adrian Lowcock is putting political events aside and focusing on investing for the longer term when buying funds for his ISA this year.

Investors are bracing themselves for a volatile reaction from the market following a stalemate between the Greek government and its creditors in the international community.

Markets are also wary of the US turning off QE and raising rates. Add this to China’s slowing economy and the UK’s unpredictable election around the corner, there is plenty to tempt investors away from buying much at the moment.

“Stock markets tend to get caught up in the moment and focus on the immediate events,” said Lowcock.

“Greece is getting all the attention at the moment, but when it comes to assessing the investment opportunity, European markets continue to look cheap and attractive relative to their own history and compared with peers such as UK and US markets.”

In spite of this, he is still erring on the side of caution to a degree in light of recent events.

“I have been reviewing my defensive funds and adding exposure to those areas which provide some insurance," he said.

One fund that Lowcock has been buying is Troy Trojan, managed by Sebastian Lyon, which sits in the IA Flexible Investment sector. The fund has a strong long-term track record, but did fall 3.13 per cent in 2013 when its sector average rose by 14.54 per cent. As a result of this nosedive, the fund currently has a one crown-rating.

Performance of fund vs sector and index since launch

      
Source: FE Analytics

The investment objective of the Trojan fund is to achieve capital growth over the longer term, meaning it leans on high-quality stocks, index-linked bonds, gold and cash to avoid permanent capital loss. However, the fund’s cautious approach means it can lag its peers in rising markets.

“The Trojan fund actually had a poor 2013 as the manager suffered his first actual loss due to falling gold prices,” said Lowcock.

“However, Lyon recovered last year and the fund has been ticking along nicely. Exposure to cash and gilts is around one-fifth of the portfolio and it is his attitude to capital preservation which attracts me to this manager.”

In terms of total return over one year, Trojan is ranked second out of 44 funds, with gains of 9 per cent. Other metrics show its capital preservation pedigree: its annualised volatility since launch is 6.69 per cent and its maximum drawdown is 9.81 per cent – making it the best in its peer group on both counts.



Trojan has a clean ongoing charges figure (OCF) of 1.07 per cent.

Looking away from defensive products, Lowcock has been investing in the £7bn Artemis Income fund, which is headed up by the FE Alpha Manager duo of Adrian Frost and Adrian Gosden. The four crown-rated fund has a strong track record and is a popular option with investors.

Lowcock says: “In my mind this isn’t a fund that does anything to stand out. It continues to do more of the same. The managers like to invest in undervalued companies with strong cash-flow and the ability to raise dividends. What always stands out is Adrian Frost’s superior stockpicking skills.”

The fund, which focuses on financially strong companies, also manages to perform well in market crashes. In 2008, Artemis Income lost 22.74 per cent compared with the FTSE All Share’s 29.93 per cent fall and managed to eke out a small 0.07 per cent return in the down year of 2011.

Performance of fund vs sector and index over 8yrs



Source: FE Analytics

However, the fund’s focus on companies with strong balance sheets led to some underperformance in 2009 and 2013 as the market favoured growth. The managers have recently started to gradually increase the portfolio’s allocation to companies with low dividends that are expected to grow at a fast pace.

Artemis Income has a clean OCF of 0.79 per cent and yields 3.5 per cent. It also appears on the FE Research team’s Select 100 list of preferred funds.

In search of growth opportunities, Lowcock has been adding to FE Alpha Manager Giles Hargreave’s Marlborough UK Micro Cap Growth fund, which has rocketed ahead of other funds in the IA UK Smaller Companies sector since launch.

“[Hargreave is] an exceptional manager who balances the risky world of investing in small and micro companies, usually under £100m, with sound and practical portfolio construction,” Lowcock explained.

“He runs a diversified portfolio of between 150 and 200 stocks where no one holding goes over 2 per cent."

"He ensures risk is well managed. Again, stockpicking skills are essential in this area and the man has an exceptional track record.”

Marlborough UK Micro Cap Growth has overcome a difficult start since launch in October 2004 and is one of the best-performing funds over this time frame. Since inception it is up 332.54 per cent, making it the fourth best member of its sector, where the average gain is 174.68 per cent.



Performance of fund vs sector since launch



Source: FE Analytics

Some investors may not like the lack of security offered by micro cap funds and their focus on less well-known companies. However, FE Analytics shows this fund has a lower annualised volatility and a smaller maximum drawdown than its average peer, while its Sharpe ratio – which measures risk-adjusted returns – is the second best in the sector.

Marlborough UK Micro Cap Growth has a clean 0.81 per cent OCF and appears on the Select 100.

Given his view that Europe looks cheap, Lowcock has been buying the Schroder European Alpha Income fund, which has a concentrated portfolio of 45 holdings of large or mid-sized companies based in, or deriving significant revenues from, Europe.

James Sym has recently taken over management of this fund and brings with him a business cycle investment approach,” said Lowcock.

“This allows the fund to adapt its investments to the change in the economic cycle and will be important for Europe as it embarks on quantitative easing. There are risks to investing in Europe and in the short term a ‘Grexit’ would affect markets. As such this could be a good fund to drip-feed money into.”

Lowcock says unrest in Europe should not overshadow long-term investment opportunities.

“QE has proven to drive markets up in the US, UK and even Japan. I would expect similar in Europe,” he added.

Since Sym took over the fund in June 2013, it has outperformed its FTSE World Europe ex UK benchmark and its peer group with a 24.71 per cent return. The fund’s largest sector allocation is to financials, which would be a natural beneficiary of QE.

Performance of fund vs sector and index over manager tenure



Source: FE Analytics

Schroder European Alpha Income has a 0.99 per cent clean OCF and yields 3.46 per cent.



Part of his long-term focus means Lowcock is staying away from some parts of the market that he thinks do not yet look attractive, even after recent falls.

“My main concern would be over short-term investing, so things like speculative investments such as oil explorers,” he said. 

“The oil price is very volatile and has fallen a long way only to rebound. It is clear that few know where it will go in the short term and, while the longer term outlook is for a recovery in the oil price, investors could get their fingers burnt during this volatile time.”

“Oil companies will and are suffering from the fall in the oil price and some will collapse. Investors would be better off with long term strategies than short-term get-rich-quick approaches.”
 

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