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Marcus Brookes: My four favourite ISA funds

14 March 2015

Schroders multi-manager Marcus Brookes shares his 2015 ISA tips across equities and bonds, highlighting four funds that he thinks look attractive

By Daniel Lanyon,

Reporter, FE Trustnet

Funds investing in UK, European and Japanese equities look more attractive than their US counterparts this ISA season, according to Marcus Brookes, head of multi-manager at Schroders.

Brookes says while he is bullish on the US economy he believes further gains will be modest and so is backing the shakier equity markets of Europe and Japan.

“We continue to favour European and Japanese equities over the US. Although we are bullish on the US economy, most of the good news appears to already be priced in to the stock market,” he said.

“We suspect relative returns from the US market will be less appealing from here, given broad valuations, whereas people are still pretty bearish in their view on the European and Japanese markets and we think they need to upgrade them. You find relatively cheap valuations there and this is where our multi-manager portfolios are currently overweight.”

“There would appear to be greater upside potential in Europe than the US, although its macroeconomic backdrop and politics clearly make further volatility possible. The Japanese market has similar dynamics to Europe, with an accommodative central bank and relatively attractive valuations.”

For investors who want Japan exposure, Brookes likes the £1.4bn GLG Japan Core Alpha fund which he has backed for many years for its large cap, value approach.

Headed by Stephen Harker since 2006, the fund has returned 63.15 per cent over this time outperforming both its sector and index by 50 and 40 percentage points respectively.

“He is a highly experienced manager who is contrarian by nature and unafraid to express his views with large sector over and underweights,” Brooks said.

Performance of fund, sector and index since 2006

Source: FE Analytics

However, over the past three years the fund has returned 35.77 per cent, underperforming both its sector and index which returned 36.61 and 38.42 per cent respectively.

GLG Japan Core Alpha has a clean ongoing charges figure (OCF) of 0.96 per cent.


For Europe, Brookes backs the £367m Schroder European Alpha Income fund, managed by James Sym.  

“He is currently very positive on the outlook for certain European equities and thinks that this year European corporate profits will grow faster than in the US, driving the next phase of share price gains,” Brookes said.

Sym has managed the fund since June 2013 and it has been the sector’s second best performing portfolio over that time with returns of 34.35 per cent, beating its benchmark – the FTSE World Europe ex UK index – by 22.84 percentage points.

Having a cyclical, recovery strategy, Sym has a consistent overweight to financials – 32 per cent – and industrials – 20 per cent.

It has a clean OCF of 0.99 per cent and a current yield of 3.24 per cent.

For the UK, Brookes favours the £800m Majedie UK Income fund managed by FE Alpha Manager Chris Reid.

Brookes says he has followed Reid’s fund since its launch but as it has recently achieved its three-year track record, he now backs it.

“Chris Reid’s style is based on high conviction, active stock picking, underpinned by in-depth and detailed analysis. Most recently the fund has benefited from having limited exposure to the struggling energy sector,” the manager explained.

The fund is top of the IA UK Equity Income sector over three years with returns of 91.52 per cent compared to a sector average of 43.46 per cent and a gain in the FTSE All Share of 32.74 per cent. The fund is top of the sector over one year as well.

Performance of fund, sector and index over 3yrs

Source: FE Analytics

It has a clean OCF of 0.78 per cent and a yield of 3.2 per cent at present.

On the fixed income side, Brookes has a pedigree of bearishness, having hiked cash in 2014 believing bonds to be in bubble territory and liable to an imminent sell-off.

“We have long had a negative stance on bonds and this has not changed, despite continued good performance from the asset class last year. Interest rates of zero look increasingly less appropriate as economic conditions improve, particularly in the US. The improving economic conditions suggest base rates will go up this year, and the bond market should be pricing in a different environment,” he said.

With that in mind he is backing perhaps the biggest bond bear in the market.

 “A fund we like is JPM Income Opportunity Plus, which is an unconventional fixed income fund with a flexible absolute return approach,” Brookes said.


The fund has been managed by Bill Eigen since its launch in 2011. He also runs a similar strategy in his US domiciled fund, which made stellar gains during the financial crisis when bonds were badly hit by buying them cheap and Brookes believes he can do the same again.

“Eigen can invest in a wide variety of fixed income markets and is able to gain short exposure to duration [interest rate sensitivity]. In other words, the fund can profit from an environment of rising interest rates.”

Eigen had up to 60 per cent of his fund in cash in 2014, but has reinvested some of the portfolio and brought down the cash level to about a third.

The fund has returned 15.53 per cent since its launch, underperforming its sector by 2 percentage points.

Performance of fund and sector since launch

Source: FE Analytics

 JPM Investments Income Opportunity Plus has an OCF of 1.2 per cent.

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