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The perfect funds to hold alongside CF Miton UK Value Opportunities

06 January 2016

A panel of investment professionals tell FE Trustnet which investment vehicles they believe will dovetail nicely with FE Alpha Manager George Godber and Georgina Hamilton’s top-performing fund.

By Lauren Mason,

Reporter, FE Trustnet

The £618m CF Miton UK Value Opportunities fund, which is run by Georgina Hamilton and FE Alpha Manager George Godber (pictured below), has delivered strong returns since its launch in 2013, having more than tripled the performance of its sector average over this time frame.

Performance of fund vs sector since launch

 

Source: FE Analytics

It is well-known for its disciplined value approach, whereby the managers spilt the portfolio into two categories – ‘bargain assets’ and ‘cheap value creators’.

However, it differs from many value funds given Hamilton and Godber’s ‘safety checks’ which means one of the portfolio’s primary aims is to protect capital. In fact, FE data shows CF Miton UK Value Opps has had the lowest maximum drawdown and the best risk-adjusted returns in the sector since its launch.

This feat is all the more impressive given it is primarily a small and mid-cap fund.

Of course, holding any fund as a sole investment is far from optimising diversification benefits, and buying into a fund with such a distinctive approach tends to call for a secondary fund to be chosen to dovetail with it.

In light of this, FE Trustnet asks a panel of investment professionals which funds they would recommend to hold alongside Hamilton and Godber’s top-performing fund:

 

Jupiter UK Growth

Mark Dampier, research director at Hargreaves Lansdown, says that he would opt for a growth fund to balance out CF Miton UK Value Opps’ value-driven approach.

He would choose the £1.7bn Jupiter UK Growth fund – which is managed by Steve Davies –predominantly for its larger weighting in blue-chips, which currently stands at 62.9 per cent. Additionally, it holds less than three times the amount of small-caps, which he says further strengthens the fund’s diversification benefits.

“You really want to look at the cross holdings, that’s the way I view it. If you’re going to have a portfolio of unit trusts, you want as much diversification as possible, and there’s not a lot of point in buying two funds when they have a lot of shares that are exactly the same,” he explained.

“With Jupiter UK Growth, what you have is a fantastically enthusiastic fund manager who is relatively new. I say relative – Steven is a top analyst anyway, and he was co-managing the fund with Ian McVeigh for a long time and he’s had it on his own for the last couple of years.”

Dampier adds that the fund also has a hefty 27 per cent weighting in financials, which is says is important as the UK Value Opps fund holds very little in the sector.

Over Davies’ tenure, the three crown-rated fund has provided a total return of 40.71 per cent, more than doubling the performance of its FTSE All Share benchmark and outperforming its peer average in the IA UK All Companies sector by 15.92 percentage points.

Performance of fund vs sector and benchmark over management tenure

 

Source: FE Analytics

It should also be noted that the fund has a concentrated portfolio of 44 stocks, and these are chosen without referencing the weightings in the FTSE All Share index. Instead, they are chosen based on one of two criteria – either they have impressive future growth prospects or they have been under pressure in terms of share price but show strong recovery potential.

Jupiter UK Growth has a clean ongoing charge figure (OCF) of 0.97 per cent.


Old Mutual UK Alpha

Ryan Hughes, fund manager at Apollo Multi Asset Management, agrees that CF Miton UK Value Opps would dovetail nicely with a fund that focuses on large-caps.

As such, he would choose Richard Buxton’s four crown-rated Old Mutual UK Alpha fund, as the manager sees a lot of value in the large-cap area of the UK market.

“Richard Buxton has had a fairly torrid time of late as UK large cap has struggled against headwinds of a Chinese slowdown and falling commodity and oil prices,” Hughes admitted.

“Historically, when Richard has had a poor period of performance, he has come back very strongly and a stabilisation of the UK market could see the FTSE 100 index outperform the FTSE 250 index sharply. While this is not necessarily my base case, holding these two funds together would offer complementary exposure and provide some insulation against a sharp recovery in UK large-cap where Miton may underperform.”

Buxton’s fund fell into the bottom decile in 2015 for the first time over Buxton’s tenure, with the exception of 2009, when he managed the fund for just one month after taking over its helm in the December of that year.

Over his time as manager, it has returned 78.92 per cent, outperforming its peer average by 5.89 percentage points and its FTSE All Share benchmark by 20.27 percentage points.

Performance of fund vs sector and benchmark over management tenure

 

Source: FE Analytics

The £2.4bn fund has also been awarded an ‘AA’ Square Mile rating for Buxton’s investment process, which the research team says he has refined over the years and has led to him becoming a highly-regarded manager within UK large-cap space.

“The focus on larger capitalisation companies differentiates it from many other UK equity funds, a number of which have relied upon the recent strength of smaller and medium sized companies to outperform,” the team said.

“The manager’s approach is far-sighted and it can take time for his ideas to be rewarded.”

Old Mutual UK Alpha has a clean OCF of 0.85 per cent and yields 3.15 per cent.


CF Lindsell Train UK Equity

As with the aforementioned experts, Informed Choice’s Martin Bamford would opt for a UK fund that focuses on large-caps. In particular, he rates the top-performing CF Lindsell Train UK Equity fund. 

“Miton UK Value Opportunities has experienced a fantastic year of performance, leaving most of the IA UK All Companies sector in its dust,” the managing director and chartered financial planner said.

“This is a long-term holding however so it’s important that investors don’t get too excited about such short-term performance; success for this fund would be better measured over five to seven years, by virtue of its investments in undervalued stocks.”

“A complementary fund to include in a portfolio alongside Miton UK Value Opportunities would be Lindsell Train UK Equity. Managed by Nick Train, this fund has had a consistently strong performance with its growth style a good option to hold alongside the value investing style from Miton.”

FE Alpha Manager Train’s fund has five FE crowns and is renowned for having a low portfolio turnover. This has stood the manager in good stead, as it has been in the top quartile for its annualised performance every year since launch, with the exception of 2007.

Its performance becomes increasingly impressive depending on the length of the time horizon its returns are viewed at – since its launch in July 2006, it has more than tripled the performance of its FTSE All Share index and more than doubled its peer average in the IA UK All Companies sector.

Performance of fund vs sector and benchmark over management tenure

 

Source: FE Analytics

Lindsell Train UK Equity has a clean OCF of 0.75 per cent.


AXA Framlington UK Select Opportunities

Unlike the other commenters, Darius McDermott, managing director at Chelsea Financial Services wouldn’t be deterred from dovetailing CF Miton UK Opportunities with a fund that holds a reasonable proportion of mid-cap stocks.

His choice, AXA Framlington UK Select Opportunities, holds a 37 per cent weighting in mid-caps, although it still has a significantly larger weighting in blue-chips and fewer small-caps than the Miton fund.

“I would look at a fund with more of a tilt towards large-caps to complement this type of fund, such as the likes of Framlington Select Opps. It still invests in mid- and small-caps but holds a much smaller amount than the Miton fund, and Nigel Thomas is looking for growth at a reasonable price,” he said.

“He buys into businesses that are growing, but he wouldn’t necessarily overpay. A lot of growth managers are happy to pay a lot for growth because they say it is currently at a premium, or whatever their reason may be.”

“It’s a pragmatic process, he’s an out-and-out bottom-up stock-picker, and he still keeps the fund to around 70 to 75 stocks. In a similar way to Miton, company meetings and knowing the management is very important to Nigel.”

The three crown-rated fund has been managed by Thomas for more than 13 years. It has managed to beat its sector average over one, three five and 10 years, providing a top-quartile total return of 119.57 per cent over the last decade.

Performance of fund vs sector over management tenure

 

Source: FE Analytics

The £4.4bn fund mostly consists of stocks that are picked using a bottom-up stock process, which involves Thomas seeking companies that have strong business models and should therefore be able to grow regardless of economic conditions.

However, the manager will also consider industrial trends and macro themes in order to utilise companies in emerging technologies.

AXA Framlington UK Select Opportunities has a clean OCF of 0.83 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.