The likes of Henderson UK Absolute Return, CF Miton UK Value Opportunities and Odey Swan are some of the funds FE Trustnet readers are looking to buy in 2016.
In accordance with our own little tradition, we asked what investment vehicles readers were eyeing up for the year ahead and you have answered in droves.
With too many to choose from, in this article we take a look at five of the funds in particular detail and why you are looking to buy them.
CF Miton UK Value Opportunities
First up is this fund, which our reader ‘hugh’ says could be a good potential addition to their portfolio if there’s another volatile period ahead for markets.
It is quickly gaining many fans owing to the rip-roaring success – particularly this year – of FE Alpha Manager George Godber and Georgina Hamilton, who co-manage the £618m fund.
The fund has returned 59.22 per cent since launch in 2013, more than six times the index’s gain over this period. This makes the fund the third best performer in the 264-strong IA UK All Companies sector over this period.
Performance of fund, sector and index since launch
Source: FE Analytics
It also has the best risk-adjusted returns and lowest maximum drawdown in the sector since inception – despite the fact it has primarily been overweight mid and small-caps.
While the track record is impressive, it is still four months shy of a three-year track record, the minimum for many professional fund buyers.
However, Godber and Hamilton had previously worked together while managing the FP Matterley Undervalued Assets fund and so have a longer term record of applying their strategy.
The managers have a value approach to stock selection, splitting their portfolio into two distinct tranches. These are ‘cheap value creators’ and ‘bargain assets’ but they also say they have a strict ‘safety check’ for all of their stocks to aim to avoid potential value traps.
Charles Stanley Direct’s Rob Morgan is fan of Godber and Hamilton’s style but he warns the rapid growth in popularity of the fund – it has taken in £426m in the past year – could mean a potential obstruction to performance if assets continue to grow swiftly.
“I like it, they are good managers and have a good investment process. My only reservation is that outperformance may be constrained if the fund becomes too large – its small cap orientated, at least historically,” Morgan said.
“There is probably enough capacity for now but worth keeping an eye on especially if liquidity in small cap dries up,” he added.
CF Miton UK Value Opportunities has a clean ongoing charges figure (OCF) of 0.89 per cent.
Next, a regular reader who goes by the moniker Sceptical says they are looking at the Odey Swan fund to dampen volatility and diversify risk.
The long/short fund, headed by Crispin Odey, tends to do well during periods of market weakness and Sceptical argues it could have decent time in second or third quarter of 2016.
The fund was launched in March 2013 and, according to FE Analytics, it has lost 17.71 per cent since and has been extremely volatile but has leaped up when markets have gone down such as in August.
Odey Swan doesn’t have a benchmark, but as a point of comparison the FTSE All Share has returned 8.52 per cent over the same period.
Performance of fund, sector and index since launch
Source: FE Analytics
While it has underperformed, our data shows the fund has had a correlation of -0.1 to the MSCI AC World index and just 0.37 per cent to the bond market as measured by the IBOXX Markit Overall Maturities index.
Tilney Bestinvest’s Jason Hollands has a cautious market outlook for 2016 due to concerns that asset price inflation experienced during years of QE and ultra-low interest rates could knock markets off course in 2016
He thinks there is too much leverage in the system and, prompted by US rates tightening at a time of slowing global growth, funds looking at absolute return and long/short strategies will do best.
But Hollands says he prefers the FP Argonaut Absolute Return fund to Odey Swan in the long/short space.
“I think there are better opportunities fishing in a pan-European universe than narrowly in the UK, especially within the long part of the book. Barry Norris runs this fund with a focus on stocks with the potential to deliver earnings surprises,” Hollands
It has outperformed its MSCI Europe ex UK benchmark and its sector average over one, three and five years as well as over one, three and six months.
Odey Swan has a clean OCF of 1.73 per cent while FP Argonaut Absolute Return is cheaper at 0.95 per cent.
Next this fund, which has a strategy aimed at cautious investors, came up with more than one entry from you all, perhaps in anticipation of choppy markets?
Morgan says the Henderson UK Absolute Return Fund is a strong choice for uncertain markets.
“The managers have shown an aptitude for making money in many types of markets and protecting capital when it matters,” he said.
The £940m fund has been managed by FE Alpha Managers Luke Newman and Ben Wallace since its launch in April 2009.
The pair take both long and short positions within their portfolio and will make short-term tactical bets as well longer calls when the situation presents itself.
Since April 2009, the fund has returned 57.7 per cent – just over half of the gain in the wider UK equity market. However, it has been considerably less volatile and has a maximum drawdown which has been a third of the index.
Performance of fund, sector and index since launch
Source: FE Analytics
The fund has a clean OCF of 0.84 per cent.
JPM Latin America Equity & BlackRock World Mining IT
Two readers picked these battered portfolios, which while specialising in different parts of the market have both suffered materially from the longer term rout in commodities and the China-led sell-off this year.
JPM Latin America Equity has been swiftly losing money for about five years, as shown below, with the region heavily out of favour and the largest single country in the index – Brazil – lurching from one crisis to another.
Performance of fund and index over 5yrs
Source: FE Analytics
The same can be said for the BlackRock World Mining IT, which has fallen 60 per cent over about four years.
Morgan says he is a fan of the Latin American region and thinks it will bounce back.
“Hopefully this will start in 2016, though it wouldn't surprise me if it was further out,” he said.
“Same for mining really. There are signs we are nearing the bottom of the cycle but there may be more pain to endure first.”
“With capacity being cut there will be an upswing at some point and well capitalised, lean mining firms with low costs of production will (eventually) reap the benefits.”
However, Hollands says he thinks the two funds should be best avoided as he envisages further pain for several reasons.
“I'm afraid I don't see a compelling case for a recovery in mining stocks or Latin America any time soon,” he added.
“Both are very sensitive to the dollar and with the US embarking on a rate hiking cycle, we would expect the dollar to remain strong, piling on the pain for Latin America as it pushes up the cost of capital and weighting on gold prices.”
JPM Latin America Equity and BlackRock World Mining IT have respective clean OCFs of 1.8 per cent and 1.4 per cent while the latter is on a15 per cent discount.