Markets have, once again, been all over the place this week. 
Everyone was feeling pretty buoyant on Monday following the Bank of Japan’s shock decision to push interest rates into negative territory, but a further fall in the oil price and bad news out of BP ended that abruptly.
While certain mining firms have experienced a very pleasant end to the week, the FTSE is still trading below 5,900 and concerns continue to abate about the situation in China and even the US – an economy some fear maybe heading for a recession.
It is in times like these investors need to funnel out the noise and focus on long-term goals, though. Unfortunately, particularly bearish headlines don’t help matters and in that regard we apologise in advance for an article we are publishing this weekend. It is a good read though, promise…
Anyway, as per tradition, here we highlight a selection of our favourite articles of the weekend. From all of us here, have a great weekend!
M&G Optimal Income loses spot as the professionals’ favourite bond fund
We start off with news editor Alex Paget’s annual series looking at the most widely held funds with fund of funds managers (that’s a lot of funds). In this instance, fixed income funds.
Over the last three years, FE Alpha Manager Richard Woolnough’s M&G Optimal Income fund has held number one spot on the study – and for good reason thanks to the manager’s stellar track record.
Its popularity has waned somewhat over recent years, though, as illustrated by the fact that a whopping £7bn has been redeemed from M&G Optimal Income over the past 12 months. A lot of this seems to be from professional investors, as the study showed that it has now slipped to second place on the list.
Most popular strategic and corporate bond funds with multi-managers
Source: FE Analytics
As the table above shows, the five crown-rated PFS TwentyFour Dynamic Bond fund is now the most popular as it features in 27 lists of top 10 holdings. Passives have also gained traction, as the article highlights.
Nick Train: Dearth of decent UK income stocks could see Finsbury IT go global
This article was written following senior reporter Daniel Lanyon’s visit to the Finsbury Growth & Income trust’s annual AGM.
During the presentation, serial outperformer Nick Train explained that there is very little value outside a handful of stocks in the broader UK equity market. As a result, he said he has been having to ‘go global’ a lot more than he has had to in the past.
“We are in a takeover boom currently and my own view is that M&A activity so far in 2016 is running in line with last year, which was the all-time record. I expect to see a lot more particularly in the industries that we are invested in,” Train said.
“Clearly there could be circumstances where if we lost two or three UK stocks to takeovers it would not be obvious what we'd replace them with. In those circumstances I think we'd to discuss the situation with the board. They'd then need to ask shareholders for greater flexibility for the investment approach.”
“I fear that that would mean we'd cease to be a UK growth and income fund and maybe become a global trust. I’m not sure I want that but force majeure might require it.”
Can your UK mid cap fund really keep rallying?
In an article published today, reporter Lauren Mason spoke to a panel of investment professionals regarding their thoughts on mid-caps, and whether the FTSE 250’s strong outperformance can continue over the medium to long-term.
The idea for the article came from various discussions with professional investors about which funds would best utilise the outperformance of mid-caps for a piece published yesterday.
While there were clear winners that have managed to significantly outperform their FTSE 250 benchmarks over the long term, many of those spoken to had concerns that valuations in the mid-cap space looked stretched.
Informed Choice’s Martin Bamford said: “We would not actively seek to allocate client money to UK mid-caps, although we still believe some allocation via mainstream UK equity funds remains important for long-term investors.”
BRI Wealth Management’s Dan Boardman-Weston, on the other hand, is far more bearish on the market area, and currently has zero exposure to mid-caps due to a combination of high valuations and UK-specific headwinds on the horizon.
“We feel that for many (not all) companies, valuations and earnings expectations are too high. With the volatile markets that we are experiencing, we’d prefer to have a margin of safety when it comes to valuations and earnings,” he said.
“To generalise, the mid-cap market is more insulated to global economic worries as a lot of the companies are domestically biased. Though this in itself could potentially create a problem with the forthcoming EU referendum.”
Where it paid to track the index in 2015 – and where it didn’t
Last up is this very data-heavy article by Paget where he looked at the areas of the market which suited active approaches over passives and vice versa.
Yes, the figures did include survivorship bias and only looked at funds that are in existence today. While this could be a major flaw for a longer term study, the very small amount of closed or merged funds over the past 13 months shouldn’t have had too much of an effect on the data here.
As the table below shows, Europe was the best hunting ground as a hefty 88.04 per cent of active funds in the IA Europe ex UK sector managed to outperform the MSCI Europe ex UK index in 2015. It was closely followed by the UK, though.
Performance of active funds in the Investment Association universe in 2015
Source: FE Analytics
It was also good news for the global, emerging market and Asia sectors but in the US and Japan – you would have probably been better off in a low-cost tracker. According to FE data, just 25 per cent of active funds in those sectors beat the wider market.
In the article, Paget went on to explain the figures and why 2015 suited active managers better in some places more than others.
