Micro-caps, Asian income and Japan funds are some of the investments that will feature in Adrian Lowcock’s ISA this year. 
The AXA Wealth head of investing (pictured) told FE Trustnet previously that investors tend to focus too much on immediate, short-term noise when making investment decisions and that he uses his ISA to buy genuine long-term holdings.
With this in mind, Lowcock provides a list of three of the main components that will make up his ISA as we get into the new year.
Schroder Asian Income
Managed by Richard Sennitt for more than 14 years, the three crown-rated Schroder Asian Income fund is a new holding in Lowcock’s ISA and will replace an existing fund.
Many investors have been bearish on Asia over the last year as a result of collapsing commodity prices and the knock-on effect of the slowdown in China.
The head of investing, though, warns that investors could miss out on valuable long-term opportunities if they place too much focus on immediate events.
“Asia is out of favour at the moment, however valuations are already attractive compared to developed markets with some excellent long-term opportunities,” he said.
“Investing in this region requires patience and a cautious approach. I consider this a holding not for 2016 but for more like 2026 and as such am adding small amounts on a regular basis.”
The reason that Lowcock has opted for Schroder Asian Income in particular is that Sennitt has had 21 years of experience in investing in the region.
The manager first joined Schroders in 1993 as an analyst on the Japan team and subsequently moved to the Pacific Basin desk four years later. Since then, he has had years of investing experience in both emerging and developed Asia Pacific markets as a regional fund manager for UK and US investors.
“He is a stock picker and runs a concentrated portfolio of 60 to 80 stocks,” Lowcock continued.
“The fund invests in companies which are financially sound and profitable with proven management focused on shareholder returns. Sennitt has a strong value discipline and won’t buy at any price.”
The £727m fund suffered two particularly torrid years in 2006 and 2007 when it sat in the bottom decile during both, but apart from these it has beaten its sector average almost every year over the last decade.
The fund has achieved a particularly strong performance over the last five years, providing a total return of 20.53 per cent and outperforming its peer average in the IA Asia Pacific ex Japan sector more than 14 times over, as well as outperforming its MSCI AC Pacific ex Japan index by 15.36 percentage points.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fund currently has a 71.87 per cent weighting in the Pacific Basin, 21.36 per cent in Australia and much smaller weightings in the UK and Asia Pacific. It also has a 4.37 per cent cash holding.
Schroder Asian Income has a clean ongoing charges figure (OCF) of 0.93 per cent and yields 4.05 per cent.
Marlborough UK Micro Cap Growth
Small-cap funds are renowned for offering significant growth over the longer term, with the FTSE Small Cap index comfortably outperforming the FTSE 100 index over one, three, five and 10 years.
Lowcock says this is because there is more scope for active investors to seek value, although he warns that good stock picking and portfolio construction are essential skills that are needed to outperform in this space.
As such, he has chosen to hold Marlborough UK Micro Cap Growth in his personal ISA, which has been managed by FE Alpha Manager Giles Hargreaves since its launch in 2004 and co-managed by Guy Feld since 2012.
“Giles Hargreaves is an exceptional long-term manager, he conducts the running of the fund thorough detailed company analysis and combines that with a strict portfolio construction discipline,” Lowcock explained.
“Holdings are initially quite small and only added to when the team sees progress. Investments that underperform and don't meet expectations are quickly sold.”
Currently, the fund has 249 holdings, with the top 10 largest weightings all less than 2 per cent of the portfolio and accounting for a total of just 14.57 per cent.
Over the last decade, it has more than doubled the performance of its average peer in the IA UK Smaller Companies sector, which it is benchmarked against.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Over the shorter term, however, it has shifted between the second and third quartile, which has contributed to its two crown rating.
The fund’s objective is to provide both a total return and income that is in excess of the FTSE Small Cap index over the medium-to-long term. The managers primarily invest in UK companies that are £250m or less in size at the time of purchase, and a considerable amount of these companies are even less than £150m in size when first bought.
Marlborough UK Micro Cap Growth has a clean OCF of 0.79 per cent.
GLG Japan Core Alpha has featured in Lowcock’s ISA for a number of years and he is looking to add to this holding in 2016.
“Shinzo Abe has made significant progress in Japan and we are beginning to see real change in corporate Japan,” he said. “Although growth was lacklustre last year the region actually avoided entering a recession.”
The head of investing has chosen this fund to take advantage of the macroeconomic situation in Japan because of co-manager Stephen Harker’s contrarian investing stance.
Harker took over the helm of the £1.7bn fund in 2006 with Neil Edwards as deputy manager, and was joined by second deputy manager Jeff Atherton in 2011 and co-manager Adrian Edwards three years later.
“They’re actively looking for companies out of favour with investors,” Lowcock continued.
“They use valuation measures including price-to-book, dividend yield and price earnings ratio to identify such stocks. They select companies with strong fundamentals where they believe there is the opportunity for a turnaround.”
Over Harker’s tenure, the three crown-rated fund has returned 68.17 per cent, outperforming its peer average in the IA Japan sector by 53.82 percentage points and its Topix benchmark by 40.48 percentage points.
Performance of fund vs sector and benchmark over management tenure
Source: FE Analytics
The managers tend to focus on large-caps, and will keep the fund reasonably concentrated through holding 35 to 70 positions at any one time. These are generally chosen on the basis that, while cheap, are only suffering short-term issues as opposed to a terminal decline.
The fund has been awarded an ‘AAA’ rating from Square Mile because of the research team’s high regard for the managers and its impressive track record.
“Note that it can take time for the market to correct the valuation anomalies that the team identify,” the team warned. “This coupled with the low turnover approach may mean that holders require patience.”
GLG Japan Core Alpha has a clean OCF of 0.97 per cent.
