Standard Life Investments UK Equity Income Unconstrained, Schroder Recovery and Artemis Global Income are some of the top performing funds that have been awarded a coveted place on the FE Invest Approved Fund List in the list’s most recent rebalancing. 
FE Research rebalances its list of preferred funds twice a year and the latest changes reflect the view that markets are likely to remain volatile for the foreseeable future, meaning it is prudent to diversify sufficiently to cover a range of potential investment scenarios.
The latest changes to the FE Invest Approved Fund List see 11 funds granted a place, while 13 have been removed. Here we will look at the additions to the list, but a coming article will explain why some high-profile names have also been removed.
Starting with the IA UK All Companies sector, Schroder Recovery and Old Mutual UK Dynamic Equity have both been given places on the list.
Managed by the FE Alpha Manager duo of Kevin Murphy and Nick Kirrage (pictured) since July 2006, the £643.5m Schroder Recovery fund has been on FE Research’s radar for some time and has been put on the FE Invest Approved Fund List thanks to its track record in growing returns while protecting investors’ capital relatively well given its recovery style.
The five FE Crown-rated fund has a deep value approach, focusing on companies which are going through difficulties that the market seems to believe they won’t be able to recover from. While this means there can be periods of underperformance, Schroder Recovery is second decile over the managers’ tenure with a 115.64 per cent total return, ranking it 25th out of 206 funds in the sector.
Luke Kerr’s five crown-rated Old Mutual UK Dynamic Equity is a long/short fund that hunts for opportunities outside of the FTSE 100. Although this can be a difficult approach to pull off, FE Research has been impressed by the manager’s ability using this strategy.
Since the FE Alpha Manager launched the fund in June 2009, its bias towards mid-caps means it has made a 226.69 per cent return, against a sector average of 105.93 per cent. This makes it the fifth highest returning fund out of 240 while it has outpaced its FTSE 250 benchmark by 40 percentage points in the process.
Performance of funds vs sector over 5yrs
Source: FE Analytics
Turning to the IA UK Equity Income sector and there’s been one addition: Standard Life Investments UK Equity Income Unconstrained, which has been managed by Thomas Moore since January 2009. The fund won its FE Invest Approved Fund List place thanks to its avoidance of the typical stocks owned by equity income funds, making it a differentiated offering in this popular sector.
FE Trustnet recently caught up with the manager, who explained why looking for opportunities outside the blue-chip defensive ‘bond proxies’ that tend to be owned by his peers is an attractive strategy. The manager’s approach has worked as his very concentrated, high risk portfolio is currently ranked first decile over one, three and five years, making a 101.22 per cent total return over the last time frame.
In the IA Global sector, Jeremy Podger’s Fidelity Global Special Situations fund has been put on the list after the manager turned it into one of the most successful members of the sector after taking it over in March 2012.
Over the FE Alpha Manager’s time at the helm, the fund has returned a first-decile 49.05 per cent and beaten its MSCI AC World benchmark by close to 20 percentage points. This is off the back of Podger’s process, which seeks companies that he regards as being exceptional value, unique businesses or undergoing corporate change.
Invesco Perpetual Global Smaller Companies is another IA Global fund to enter the FE Invest Approved Fund List. The fund was chosen by FE Research as its team-managed approach means the global market can be covered effectively, while its focus on small-caps offers diversification from a typical global portfolio.
The fund sits in the sector’s top quartile over three and five years, although the nature of small-caps means it is more risky than its average peer – as shown through its bottom decile annualised volatility and maximum drawdown.
Performance of funds vs sector over 5yrs
Source: FE Analytics
There’s also been an addition in the IA Global Equity Income sector. Jacob de Tusch-Lec’s Artemis Global Income fund has joined the list for its consistent outperformance; the fund is the highest returning member of the sector over three and five years, making 88.74 per cent over the past half-decade.
FE Research highlights Artemis Global Income as a good way to diversify global equity exposure, thanks to its income focus. The average IA Global Equity Income has 27.40 per cent in the UK, which means there’s the risk of overlap with an investor’s core holdings; however, de Tusch-Lec’s portfolio is designed to work next to UK income funds and only has 11.8 per cent in domestic stocks.
Only one regional fund has made the grade, with JPM Europe Dynamic ex UK being added. The fund, which is managed by John Baker, Jonathan Ingram and Blake Crawford, is recommended as it is different to most of its peers and is therefore a good diversifier in the IA Europe ex UK sector.
The portfolio is built using a quantitative strategy that screens for stocks trading on attraction valuations, with sustainable earnings and disciplined management teams, and positive momentum in earnings and share prices. This has pushed into the peer group’s top quartile over three and five years.
Moving on to the multi-asset sectors and Standard Life Investments Global Advantage and Jupiter High Income have been added from the IA Mixed Investment 40-85% Shares sector.
FE’s analysts describe the Standard Life offering as a “less glamorous version” of the firm’s popular Global Absolute Return Strategies (GARS) fund, which is one of the industry’s highest rated absolute return portfolios. Standard Life Investments Global Advantage is managed by the same team as GARS but aims for higher growth through holding stocks and bonds.
The fund has made 44.63 per cent over five years, putting it in the top quartile of the sector where the average return has been 35.12 per cent. A fourth-quartile 2014 has pulled the fund into the second quartile over three years and the third quartile over one, although it still holds four FE Crowns for good overall performance.
Jupiter High Income, which is run by FE Alpha Manager Alastair Gunn and Rhys Petheram, is currently first decile over one, three and five years as well as over 2015 so far. FE Research notes that Jupiter’s track record in multi-asset investing means the fund benefits from good levels of support.
Gunn manages the equity element of the portfolio while Petheram looks after the bonds. The fund has a value-orientated approach, focusing on businesses that benefit from growing and sustainable cash flows that may be returned to shareholders.
Performance of funds vs sector over 5yrs
Source: FE Analytics
From the IA Mixed Investment 20-60% Shares sector, Jacqueline Kerr’s Standard Life Investments Dynamic Distribution has been put on the FE Invest Approved Fund List in recognition of the “exceptionally impressive returns” it has made over recent years, despite its relatively cautious approach.
Our data shows the five FE Crown-rated fund is the second highest returning member of the peer group over three and five years, more than doubling its average peer’s gain over five years by making 54.58 per cent. It’s a fund of funds that only invests in other Standard Life Investments vehicles and counts the group’s UK Equity High Income, UK Property and Corporate Bond funds as top holdings.
Finally, one bond fund has joined the FE Invest Approved Fund List in the rebalancing: Royal London UK Government Bond, which is headed up by Paul Rayner and Craig Inches. The fund was added to diversify the FE Invest Approved Fund List’s gilt exposure and this portfolio is one FE Research thinks will best complement its other government bond funds.
In an article later in the week, we’ll look at the funds that FE Research has removed from the FE Invest Approved Fund List and the reasons behind these moves.