Anyone with even the faintest interest in markets won’t have missed the rollercoaster ride of the FTSE this week, with the blue-chip index tanking on Monday before bouncing around for the rest of the week and (hopefully) ending it broadly flat.
The sell-off has been pretty strong and the FTSE 100 is now down some 11.5 per cent from its peak in April, but experts have been vocal in telling investors to not panic and keep an eye on their long-term aims. Investors with a high risk appetite were also reminded that conditions like this can be a good time to buy.
Kevin Boscher, chief investment officer at Brooks Macdonald, said: “Although market corrections are never comfortable or easy, they do present opportunity and it usually pays to stand back and look at the fundamental background. Despite the turmoil in markets, we remain optimistic on the economic background and outlook for financial markets beyond the next few weeks.”
“Our expectation is that markets will soon stabilise and we are naturally keen to make the most of opportunities that present themselves, either to add value from a relative perspective or to benefit from the major trends and themes that will drive future returns.”
With all that’s been going on, it’s no surprise that a lot of our stories this week have been about the sell-off and that’s reflected in our selection of best stories below. From all of the FE Trustnet team, have a great long weekend!
FTSE in freefall: The funds experts tip to take advantage of this “humongous buying opportunity”
With it being pretty clear early into Monday’s session that it was going to be a bad day for markets, senior reporter Daniel Lanyon asked the experts which funds they were planning on buying during the correction.
Darius McDermott, managing director at Chelsea Financial Services, suggested looking for portfolios that focus on opportunities further down the market-cap spectrum, highlighting the likes of Neptune UK Mid Cap and Marlborough Special Situations, which are both managed by FE Alpha Managers in Mark Martin and Giles Hargreaves respectively.
Performance of funds and indices over 3yrs
Source: FE Analytics
McDermott added: “If you think the world is not going to end and that valuations have got substantially cheaper in the last eight to 10 weeks, but particularly in the past eight to 10 days, you may want to play the recovery in a slightly higher beta type of idea.”
Have another read of the story to see which other funds the experts are recommending to play the market turmoil and its recovery.
The best-performing absolute return funds during the FTSE’s 15% fall
For the more cautious investor, news editor Alex Paget put the IA Targeted Absolute Return sector under the spotlight to see which of its members held up best between its peak in late April and close of trading on Monday, when the FTSE 100 lost about 15 per cent.
David Crawford’s five FE Crown-rated City Financial Absolute Equity fund topped the table with a 25.74 per cent gain. The fund has the ability to go short and Crawford is known for using his ‘short book’ as a tool for alpha generation rather than just a hedge against wider market falls.
The manager told FE Trustnet back in May: “We would say, because the market is pretty bullish, there is more opportunity on the short side as some companies aren’t as good as the market thinks they are.”
Source: FE Analytics
Long/short funds are plentiful in the above table, with the likes of Polar Capital UK Absolute Equity, Schroder Absolute UK Dynamic, Artemis Pan European Absolute Return, Artemis US Absolute Return, TM Cartesian UK Absolute Alpha, Old Mutual UK Opportunities and RWC US Absolute Alpha all taking this approach.
Dampier: Why I will buy more of Woodford’s income fund in this crisis
Following the FTSE’s falls on ‘Black Monday’, senior reporter Daniel Lanyon caught up with Hargreaves Lansdown’s Mark Dampier about whether he was looking to buy into the market.
Dampier said that while he was expecting further volatility, he was planning on upping his exposure to star manager Neil Woodford’s Equity Income fund given the lower valuations, and higher yields, on offer.
The £6.7bn fund has been affected by the increasingly negative sentiment, posting its highest drawdown since its launch in June last year. However, Dampier said this was a good time to look at the fund.
“I have been sitting thinking each day about buying it and each day it has fallen further and I have just sat back and thought I should wait. I don't need to try and catch a falling knife. I have got quite a big holding in Neil anyway so I can afford to take my time. I might do some this week, but I just don't know yet,” he said.
“For me I am looking to buy income more than anything else because I am an older person and will retire eventually and I like dividends. Capital growth is pretty uncertain but income is usually fairly steady and I think you have to have conviction in the fund managers you think are good and when times are bad you should be buying.”
The best funds outside of the UK for income and dividend growth
We kicked off the week with a study on the best performing regional equity funds for investors looking to diversify their income streams.
The main reasons behind the research were not only because the UK dividend paying market is highly concentrated and dependent on just a few mega-caps, but also with dividend growth within some of the UK’s largest companies waning, dividend cover on the FTSE 100 has fallen to just 1.5 times.
This trend has led many experts, such as Standard Life Investments’ Thomas Moore, to warn that some of the most reliable income payers may be forced to cut their dividends over the coming few months.
The study made for better reading, however, as FE data shows that investors have been paid more in income from IA Asia Pacific ex Japan equity income funds over the past five years.
Source: FE Analytics
The standout performer has been Schroder Asian Income Maximiser, which uses covered call options to boost its income payout. Not only has the fund paid out £3,662.15 in dividends on a £10,000 investment made in January 2011, it has also increased its distribution in every year since launch.
How Johnson and Peta are overhauling Cowley’s Old Mutual Global Strategic Bond fund
With Christine Johnson and John Peta now having spent a few months at the helm of the Old Mutual Global Strategic Bond fund, news editor Gary Jackson caught up with them to find out how they have changed the portfolio.
While the fund was very defensively positioned under Stewart Cowley – who described himself as “the bond manager that hates bonds” – Johnson and Peta have taken a more pragmatic approach by looking to other areas of the market and seeking to increase its yield.
Peta said: “It’s a fund that is trying to protect clients’ assets but is probably a little less extreme than under Stewart. Under Stewart you might have used the fund as an asset allocation vehicle if you were really quite negative on bonds; we’re in the camp that bonds aren’t great value but can still serve a purpose in providing income.”
“While the income might seem pretty skimpy compared to the past, that’s probably the way it’ll be for a while. It is a new world and we recognise that – we want to protect the asset but still provide some income. The general idea is to increase the number of things that we can do.”
Ashworth-Lord: What a competitive advantage looks like
Over on Trustnet Direct, Keith Ashworth-Lord, manager of the Premier ConBrio Sanford DeLand UK Buffettology fund, looked at what makes a good management team and revealed why it is easier to define than you might think.
“At first glance, this appears to be a subjective judgement, but on deeper digging, you usually find that a favourable appraisal is supported or otherwise in the 10 or 20 years of ratio analysis that I hold on most companies in the portfolio,” he said.
“Numbers gathered over this length of time do not lie. When you have scores of key performance indicators and business ratios to pore over, you are not short of material to help you.”
Ashworth-Lord gave the example of Games Workshop as a company with a strong management team.
“Games Workshop has been trying to get cost out of its business by transitioning to one-man operated stores and using lease renewals to move from prime sites to secondary locations.”
“So an obvious performance measure of management success here is to analyse operating lease rentals per store. This measure had moved up from approximately £32,400 in 2004 to £34,100 in 2010. In the financial year just ended, it has fallen back to £18,400.”
“Alongside this, staff costs to sales have come down and sales per employee gone up from £61,235 in 2010 to £72,027 in 2015. Clearly there is something good going on here.”
