Buying a fund when it has reached a large size might offer some psychological benefits – after all, everyone else also chose to invest in that portfolio so your thought process can’t be too wrong, right? However, seasoned investors point out that performance can dip as assets rise and recommend getting into a portfolio when it is still nimble.
Of course, there are plenty of small funds out there but which ones do the adviser community recommend for the bulk of investors? To answer this, FE Trustnet has looked across the AFI Aggressive, Balanced and Cautious portfolios compiled by our panel of leading advisers to see which funds with assets of less than £250m feature in all three.
FP Argonaut European Income
Oliver Russ’ FP Argonaut European Income fund has assets of just £174m. The fund is built around a concentrated portfolio of between 30 and 50 stocks with the aim of providing a yield above that of the MSCI Europe ex UK index.
Since launch in December 2005, it has returned 69.19 per cent compared with an average gain of 75.91 per cent in its IA Europe excluding UK sector and a 69.75 per cent rise in the benchmark. While the fund has underperformed over this time frame, FE Analytics shows it is first quintile in its peer group for both annualised volatility and maximum drawdown.
Performance of fund vs sector and index since launch
Source: FE Analytics
Russ runs a relatively concentrated portfolio of 39 holdings, with his largest positions currently being Zurich Insurance, Swedbank and Allianz. The largest overweight is to financials, at 13.6 per cent over the benchmark, followed by consumer discretionary and utilities; the biggest underweight is to information technology.
The manager is optimistic in his outlook for European stock markets, saying in his last investor update: “2014 should have seen an earnings inflection point for Europe, breaking the cycle of negative earnings downgrades, although that can only be known with certainty with full year results in the next few weeks. 2015 should see an extension of those gains, with the oil stimulus and potential ECB money-printing adding fuel to an economy that already seems to be seeing an expansion of M1 money supply and associated lending.”
FP Argonaut European Income has a clean ongoing charges figure (OCF) of 0.87 per cent and yields 4.09 per cent.
Fidelity Global Dividend
Daniel Roberts’ £114m Fidelity Global Dividend fund has only just established its three-year track record, having launched at the end of January 2012. While this means it has not yet received a FE Crown rating, performance since inception appears promising.
FE Analytics shows the fund is currently first decile in the IA Global Equity Income sector with a 51.95 per cent gain, making it the peer group’s fourth highest returning member over this time. It’s also second decile over one year and top decile over six months.
Performance of fund vs sector and index since launch
Source: FE Analytics
The portfolio is constructed using a bottom-up approach that seeks business with a “healthy yield underpinned by a growing level of income”, in addition to the prospect of capital growth. Roberts pays particular attention to the sustainability of business’ dividend and whether its share price offers a sufficient margin of safety.
The portfolio is currently overweight healthcare, consumer discretionary and consumer staples and its biggest geographical bets are to the US, the Netherlands and the UK. Its largest individual holdings are Reed Elsevier, Johnson & Johnson and Wolters Kluwer.
Fidelity Global Dividend has a 0.95 per cent clean OCF, with a 2.67 per cent yield.
Kames Property Income
The Kames Property Income fund only launched in March 2014 but has already found its way into the AFI Aggressive, Balanced and Cautious portfolios as well as attracting £207m in assets.
Managed by David Wise and Alex Walker, the portfolio focuses on the gap between prime and secondary property to create a “competitive income” for investors. It targets properties that are outside of the prime London market and are too expensive for most private buyers but too small for most institutional investors.
The portfolio has just 14.46 per cent in London, with the north-west being its largest geographical bet at 34.35 per cent of assets. There’s also 18.74 per cent of the portfolio in Scottish properties, 16.92 per cent in the north-east and 7.66 per cent in the West Midlands.
Given the fund’s short track record, there isn’t an abundance of data on it. FE Analytics shows it has returned 6.39 per cent since launch, compared with a peer group average of 15.44 per cent, while an initial investment of £10,000 at the start would have paid out £312 in income.
Performance of fund vs sector since launch
Source: FE Analytics
The fund has also proven to be less volatile than its average peer with FE Analytics showing an annualised volatility of 1.12 per cent since launch. The average IA Property member has an annualised volatility score of 5.55 per cent over this time.
In their latest outlook, Walker said: “We are still positive about the immediate outlook for property in the UK, despite the strong returns in 2014. Secondary pricing has moved up substantially, but we still believe there is an opportunity here. We expect it to continue to attract attention from investors seeking high yields. Consequently, we expect returns to be attractive.”
Kames Property Income has a clean OCF of 0.96 per cent and is yet to publish its yield.
Over the coming weeks, FE Trustnet will dig deeper into the major Investment Association sectors to find more small funds that could be a good fit for investors' portfolios.