Investors looking to add their ISA or SIPP before the end of the tax year so consider UK and Asian equity funds run by well-regarded management team, says Hargreaves Lansdown senior analyst Laith Khalaf, as both markets are trading on relatively attractive valuations.
The past year or so has been a challenging time for investors, with the FTSE 100 falling from record highs to go into a prolonged sell-off that extended into the opening months of 2016. However, some commentators including Khalaf argue this is creating some investment opportunities.
“The UK stock market is 10 per cent cheaper than it was twelve months ago and, while this won’t prompt many cheers from investors, the silver lining is they can now put money to work in the market at a lower level,” he said.
“Swings in commodity prices and fears over the global economy continue to dominate market sentiment, though in recent weeks we have seen a bounce in confidence and a rally in the oil price. However, investors should try to shut out the short-term noise and focus on meeting their savings goals in the long term.”
In the following article, we look at three active funds that Hargreaves Lansdown thinks investors could consider before the ISA and SIPP deadline arrives.
Marlborough UK Micro Cap Growth
The £500m fund has been headed by FE Alpha Manager Giles Hargreave since its launch in October 2004; he was joined by co-manager Guy Field in February 2012.
Hargreave is a well-known small-cap investor, also running the Marlborough Special Situations and Marlborough Nano Cap Growth funds as well as the Hargreave Hale AIM VCT 1 and Hargreave Hale AIM VCT 2.
Since launch, Marlborough UK Micro Cap Growth has made a 403.18 per cent total return and is ranked second out of the 34 funds in the IA UK Smaller Companies sector. The fund is also top quartile when it comes to metrics such as alpha generation, annualised volatility, risk-adjusted returns as indicated by the Sharpe ratio and maximum drawdown, which shows the most an investor would have lost if they bought and sold at the worst possible times.
Performance of fund vs sector since launch
Source: FE Analytics
“The share prices of smaller companies are often driven more by what is going on it their businesses than by wider macro-economic conditions,” Khalaf said.
“This gives managers an opportunity to pick companies which enjoy growth even in challenging economic environment times like these. Giles Hargreave, who runs this fund, is one of the most experienced and successful smaller companies investors around.”
Next Fifteen Communications is the portfolio’s largest holding at 1.7 per cent, followed by Fevertree Drinks, Staffline Group, GB Group and Eckoh. Its biggest sector exposures are to industrials, technology and consumer services.
The fund also has fans in the FE Research team, as it appears on the FE Invest Approved list where its manager’s experience and its diversified portfolio (it currently has 254 holdings) are cited as attractive features.
Marlborough UK Micro Cap Growth has a clean ongoing charges figure (OCF) of 0.79 per cent.
Stewart Investors Asia Pacific Leaders
Asian equities have suffered over recent years after deteriorating investor sentiment towards emerging markets and concerns over slowing economic growth in China sparked underperformance against developed world stocks.
Khalaf argues that this means now could be an opportune time to add exposure to this part of the market: “Asia is an unloved area of the world at the moment and this normally means it’s a good time to invest. The Stewart team are a class outfit and have a conservative investment approach in a high risk area of the world.”
As the below graph shows, FE Alpha Managers Angus Tulloch and David Gait’s £8.2bn Stewart Investors Asia Pacific Leaders fund has outperformed its average peer in the IA Asia Pacific ex Japan sector and its MSCI Asia Pacific ex Japan benchmark since inception December 2003. It is also top quartile over one, three, five and 10-year periods.
Performance of fund vs sector and index since launch
Source: FE Analytics
FE Analytics also shows the fund performs strongly when it comes to other metrics, as it is first decile for alpha generation, maximum drawdown, Sharpe ratio and annualised volatility – being in the top three of its peers on all four of these counts.
It must be noted that Gait will become lead manager of the portfolio in July this year, with Tulloch stepping back from day-to-day responsibilities but remaining a member of the investment team.
Square Mile, which gives the fund its top ‘AAA’ rating, said: “As one of the earliest to join Mr Tulloch in 1997, Mr Gait has accumulated a wealth of fund management and research experience in this asset class and has long been involved in encouraging the growth of sustainable investment. We see this development, as part of a succession planning that has been over 20 years in the making.”
Stewart Investors Asia Pacific Leaders has a 0.90 per cent clean OCF.
UK equity income veteran Neil Woodford launched this now £8.4bn fund in June 2014 after departing Invesco Perpetual to start his own asset management house. Since then, it is best performing member of the IA UK Equity Income sector with a 17.40 per cent total return.
Performance of fund vs sector and index since launch
Source: FE Analytics
Khalaf points that Woodford built up a very strong track record prior to going out on his own. FE Analytics shows the manager has made a 309.90 per cent since our data starts in January 2000, compared with a 105.86 per cent from its peer group composite.
“Neil Woodford is known for his reading of the big economic picture, as well as his ability to pick out successful companies,” the senior analyst said. “There can be few better candidates for a long-term custodian of your savings.”
The fund’s biggest holdings are to large-cap defensives that the manager made his name with, such as Imperial Brands, AstraZeneca, GlaxoSmithKline and British American Tobacco. However, it also has some exposure to the more innovative smaller companies that Woodford has been vocal in expressing an interest in since setting up Woodford Investment Management.
CF Woodford Equity Income has a clean OCF of 0.75 per cent.
