With the FTSE 100 recently breaking through the 7,000 barrier and a very uncertain general election on the horizon, it’s not surprising that most of us are steering clear of UK equities. In fact, only one of the six members of the team has opted for a UK fund – and that’s run by a manager with a great track record of protecting investors’ capital.
Global equity funds, especially those with an income tilt, have proven popular with our team this year, while one reporter is interested in an exchange traded fund (ETF) track one of the world’s most unloved markets and another member is looking to the wider emerging markets space.
We’re also keen to hear what you’ve been looking at this ISA season – so feel free to comment on the bottom of the article.
Invesco Perpetual Global Equity Income
Josh Ausden, head of FE Trustnet content, said: “I’ve decided to increase my final monthly allocation before the end of the tax year to the Invesco Perpetual Global Equity Income fund at the expense of Trojan Income, Somerset Emerging Markets Dividend Growth and First State Asia Pacific Leaders.”
Performance of fund vs sector over manager tenure
Source: FE Analytics
“Trojan Income has had a great run, but the FTSE all-time high and upcoming election have convinced me to take some of my profits and allocate elsewhere. Likewise, the Somerset and First State funds have performed very strongly on both a relative and absolute basis, but I’m nervous about the impact rising US interest rates could have on emerging markets.”
“Invesco Perpetual Global Equity Income is a fund I like very much, not least because it combines the best ideas of the firm’s celebrated equity income team. The fund’s overweight in continental Europe compliments my top down view, and the general diversification it gives me is also a big plus.”
Invesco Perpetual Global Equity Income has a clean ongoing charges figure (OCF) of 0.92 per cent and yields 2.88 per cent.
PFS Somerset Emerging Markets Dividend Growth
Gary Jackson, news editor of FE Trustnet, said: “Josh has highlighted that rising interest rates in the US would have an impact on emerging markets. However, I’ve picked Somerset Emerging Markets Dividend Growth as my 2015 ISA pick as I think this risk is largely priced in and the underperformance of emerging markets over recent years makes them attractive on a long-term view.”
“FE Alpha Manager Edward Lam has built up a solid track record on this five crown-rated fund, which is now £915m in size. He’s returned 39.39 per cent since launch in March 2010, over which time the MSCI Emerging Markets index and his average peer have made less than 10 per cent.”
Performance of fund vs sector and index since launch
Source: FE Analytics
“Of course, emerging markets are going to feel some pain when the Federal Reserve does lift rates. But Lam has done a good job during other tough periods for his asset class, for example his 5.97 per cent loss in 2011, when the index and sector fell almost 20 per cent.”
“What I also like is the manager’s willingness to hold cash if he sees no compelling opportunities. The fund’s cash weighting is currently at 12.5 per cent, which gives a degree of insulation if there were to be any upset in the market as well as the chance to buy stocks that have fallen to more attractive valuations.”
PFS Somerset Emerging Markets Dividend Growth has a 1.33 per cent OCF and a 2.30 per cent yield. It applies a dilution levy to inflows.
CF Woodford Equity Income
Anthony Luzio, production editor at FE Trustnet, said: “Although CF Woodford Equity Income is unlikely to be the best-performing fund in the IA universe over the next 12 months, trying to pick the one that will would be like pinning jelly to a cat.”
“As I’ve learnt from previous ISA picks, the funds that do have the ability to deliver gains of 40 per cent in a year are just as likely to lose this amount – and from my own experience this tends to be the more likely outcome.”
“Because I have a relatively long-term horizon I’m still drip-feeding money into higher risk funds every month, including some emerging markets and small cap ones. However, I wouldn’t trust a fund from either of these sectors to do the business for me in a 12-month period, especially since the outlook is so uncertain.”
“Finally, although Neil Woodford is supposed to be a defensive manager, CF Woodford Equity Income has been no slouch since launch – it is up by more than 15 per cent in just under 10 months. I am also considering investing in the manager’s investment trust before the April deadline.”
Performance of fund vs sector and index since launch
Source: FE Analytics
CF Woodford Equity Income has a 75 per cent clean OCF and targets a 4 per cent yield.
Kennox Strategic Value
Alex Paget, senior reporter at FE Trustnet, said: “One fund which has caught my eye this ISA season is Kennox Strategic Value, which is headed up by new FE Alpha Managers Charles L Heenan and Geoff Legg.”
“I like that the managers take a very concentrated approach – the portfolio is made up of just 20-odd stocks. They also have an interesting approach to the market, by which their strict valuation discipline ensures they build up cash during rising markets so that they can deploy it when the index falls out of bed.”
Performance of fund vs sector since launch
Source: FE Analytics
“Yes, that means it will lag in rising markets, but I’m not bothered by that as is can come into its own in flat or falling markets.”
“While I don’t think an economic collapse is on the cards, the tightening of monetary policy in the US will inevitably mean equity returns are going to be harder to come by over the short term and this fund should capitalise on the heightened volatility.”
“In terms of positioning, I like the fact they are very underweight US equities relative to the index considering the S&P has posted positive returns in each of the last six years and now looks fully valued.”
“Though it has 17 per cent in cash, I think the managers overweight positions in the liquidity-fuelled European and Japanese markets will help the fund beat the index and sector over the short term.”
Kennox Strategic Value has a 1.13 per cent OCF and yields 2.01 per cent.
iShares MSCI Brazil UCITS ETF
Daniel Lanyon, reporter at FE Trustnet said: “The iShares MSCI Brazil UCITS ETF is my chosen ISA idea this year. Being a relatively new investor with no need to ‘de-risk’ anytime soon I am looking for something with a decent five-year growth story to potentially bolster returns this ISA season.”
“Being more acquainted with actively managed funds, it does feel a little strange to back a both passive and highly volatile exchange ETF.”
“My thinking is that with developed world equities at sky high valuations and the FTSE 100 continuing to reach all-time highs as well as historically bond low yields, now is not the best time to buy further into either core bond or equity markets.”
“Also, backing Baillie Gifford Japanese at the beginning of the year has turned out as sage so far – it is up about 20 per cent but I want something reasonably uncorrelated to shore up any changes in performance of Japan and/or the yen.”
“The MSCI Brazil index has lost almost 40 per cent since its peak last year, mainly due to a fall in the oil price but as also a huge political scandal involving the alleged corruption of senior politicians within the newly formed coalition government.”
Performance of ETF and index over 1yr
Source: FE Analytics
“My money says that this has sent the stock market far below its potential value and that the oil price will not stay low for ever.”
The iShares MSCI Brazil UCITS ETF has a 0.65 per cent OCF.
Artemis Global Income
Lauren Mason, reporter at FE Trustnet, said: “As a new investor, I am leaning towards investing in an equity income fund as I think that the compounding power of income is a good basis for growth over the long term.”
“For me, Artemis Global Income stands out as a good potential core thanks to its impressive performance over the last three years. Within this time period, it’s delivered top quartile returns of 73.33 per cent, which is nearly double the gains of its average peer.”
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
“While past performance is no guide to the future, a lot of the people I speak to have confidence in manager Jacob de Tusch-Lec’s ability. However, I’ll keep an eye on whether the fund’s growing size – it’s now approaching £2bn – starts to impact Tusch-Lec’s freedom to explore a wide range of opportunities without restriction in terms of company size and geographical split.”
“I decided to opt for a global fund as a means of broader diversification and, as an inexperienced investor, I struggle to find full conviction in one area alone. The portfolio’s biggest allocation is to the eurozone, followed by North America and Asia Pacific; there’s only 12.8 per cent in the UK, which I guess means I should start to look for a core UK holding.”
Artemis Global Income has a clean OCF of 0.84 per cent, with a 3.40 per cent yield.
