Skip to the content

Five funds that have just joined the FE Research Select 100

09 March 2015

The FE Research team has rebalanced its Select 100 list of preferred funds so FE Trustnet takes a closer look at some of the portfolios joining the elite list.

By Gary Jackson,

News Editor, FE Trustnet

The FE Research team has just completed its biannual review of its Select 100 list of preferred funds and has made a number of changes to its members.

The elite list had fallen below 100 members in a previous review but it has now been restored to its full strength after 17 funds were given a buy rating. However, some funds have also been dropped from the list, which we will cover in a coming article.

In the below article, we look at five of the funds that have just been awarded a place on the Select 100 thanks to their strong track records.

 

GVO UK Focus

FE Alpha Manager Jamie Seaton’s (pictured) GVO UK Focus fund has been added to the list as the team believes the strategy brings additional diversification to those portfolios already included from the IA UK All Companies sector.

The five FE Crown-rated portfolio analyses companies using private equity-based valuation techniques, which is a relatively unique approach for the peer group.

This approach sees the manager assess how much a company would be worth to a private buyer, with a rigorous focus on cash flow. Particular attention is paid to how growing cash flow can increase the value of the assets of the business relative to the debt.

The FE Research team said: “This is an unusual approach and one that could suit investors looking for a fund with the potential to outperform the UK market. We have been impressed by its investment strategy and feel it brings additional diversification to the shortlist. The fund also has an excellent track record.”

Performance of fund vs sector and index over manager tenure

 

Source: FE Analytics

Since Seaton took over the portfolio in April 2009, the fund has made 255.28 per cent – compared with a 139.27 per cent return from the average IA UK All Companies fund and a 128.40 per cent rise in its FTSE All Share benchmark. This puts it in ninth place out of 236 funds in the highly competitive sector.

GVO UK Focus has an ongoing charges figure (OCF) of 1.45 per cent and has a yield of 1.10 per cent.
 

Majedie UK Income

This £797m fund, which is headed by FE Alpha Manager Chris Reid and Yuri Khodjamirian, became eligible for its FE Crown rating in January this year and was awarded the highest score of five.


The FE Research team has added the fund to Select 100 now it has a long enough track record to justify inclusion.

It’s easy to see why – since launch in December 2011 the portfolio has gained 105.49 per cent, against a 61.06 per cent average return among IA UK Equity Income funds and a 51.37 per cent advance in the FTSE All Share. This ranks it first in the peer group over this time.

Performance of fund vs sector and index since launch

 

Source: FE Analytics

The FE Research team said: “Reid focuses on creating a high conviction portfolio by picking companies that are often unloved by the market, but undergoing a positive transformation, while still paying out an acceptable dividend to investors. This allows the fund to benefit from income and also capital appreciation as market prices react to the improvements being made.”

Top holdings include Direct Line Insurance, Pearson, Friends Life, easyJet and Rio Tinto. The fund’s largest sector weighting is to life insurance, followed by travel & leisure, non-life insurance, financial services and aerospace & defence.

Majedie UK Income has a clean OCF of 0.78 per cent and yields 3.29 per cent.
 

Fundsmith Equity

  Fundsmith Equity was only launched by FE Alpha Manager Terry Smith in November 2010 but has been on the FE Research team’s radar for some time, owing to “its ability to produce strong performance whilst taking on less risk than its peers.”

The five crown-rated fund is the fourth best performing portfolio in the IA Global sector, with a return of 107.30 per cent since inception.

It’s achieved this while having the lowest maximum drawdown of its peers – at just 4.55 per cent, one of the lowest annualised volatility scores at 9.43 per cent and a Sharpe ratio of 1.52, which is the sector’s third highest.


Performance of fund vs sector and index since launch

 

Source: FE Analytics

“Smith looks for companies with sustainable returns on investors’ capital of over 10 per cent and which are on attractive valuations,” the FE Research team said.

“He looks for companies in basic industries serving repeatable needs such as consumer staples manufacturers or medical device producers. The fund avoids cyclical industries such as airlines, banks and real estate, and looks for companies generating high levels of cash which should be stable or growing in the future.”

Holdings include Microsoft, Unilever, Imperial Tobacco, Reckitt Benckiser and Domino's Pizza. Fundsmith Equity has a 0.99 per cent clean OCF and a 1.05 per cent yield.

 
GAM Star Credit Opportunities GBP

FE Alpha Manager Anthony Smouha’s GAM Star Credit Opportunities fund is ranked first in the IA Sterling Strategic Bond sector since launch in July 2011 after returning 52.98 per cent.

As the graph below shows, this is around double the gain made its average peer and its Barclays Sterling Aggregate benchmark.

The five crown-rated fund is also the best in its sector for risk-adjusted returns, as measured by the Sharpe ratio. Its Sharpe ratio is 1.41 per cent over its lifetime, compared with a 0.72 per cent sector average. However, its maximum drawdown is higher than both the peer group and the index.

Performance of fund vs sector and index since launch

 

Source: FE Analytics


Smouha focuses on buying bonds issued in sterling by higher quality and often well known companies but opts for securities that rank lower in priority should the business become insolvent, arguing that this will rarely be the case with high quality names so the risk is worth it.

“Because of the fund’s unusual investment style, its performance often deviates significantly from the broader sterling corporate bond market. This can be beneficial in delivering a high income to investors that is diversified away from more traditional bond funds,” the FE Research team said.

“As always, this extra return comes at a price, and should the global financial system become stressed again, this fund could experience heavy equity-like losses over the short to medium term.”

GAM Star Credit Opportunities GBP has a 1.59 per cent total expense ratio.

 
Kames Ethical Cautious Managed

The equity portion of this five-crown rated fund is managed by Audrey Ryan with FE Alpha Manager Iain Buckle looking after the bond allocation.

The fund is managed to a ‘dark green’ ethical process, which is the strictest of ethical screenings and means the portfolio can’t invest in gambling, alcohol, nuclear power, tobacco and companies that have made political contributions of more than £25,000 over the past 12 months.

Although it ethical approach means it will probably be off the radar of most retail investors, the fund has been around since March 2007 and since then has returned 64.61 per cent – putting it in fourth place in the IA Mixed Investment 20-60% Shares sector.

Performance of fund vs sector since launch

 

Source: FE Analytics

The FE Research team said: “Much of the good relative performance of this fund has been down to the restrictions placed on it by the ethical mandate. Investors should be aware that this could turn against the fund in different market conditions.”

The above point is reflected in the fund’s annualised volatility and maximum drawdown, which are higher than the sector average since launch. However, it has some of the best Sharpe, Sortino and Treynor ratios – which attempt to measure risk-adjusted performance – of its peer group.

Kames Ethical Cautious Managed has a 0.81 per cent clean OCF and is currently yielding 1.85 per cent.

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

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.