FE Alpha Manager Wood targets void in Global sector
UK Equity Income has Woodford, Asia Pacific ex Japan has Tulloch, but there is a lack of top-rated defensive managers in the popular Global sector.
The newly launched JOHCM Global Opportunities fund will look to emulate the performance of its FE five crown-rated UK equivalent, which tops the risk-adjusted returns table in its UK All Companies
sector over five years.
The fund, which like JOHCM UK Opportunities
will be headed up by
and FE Alpha Manager John Wood
, will seek to generate high risk-adjusted returns by focusing on high-quality, cash flow-generative companies with strong balance sheets. It officially opens to retail investors on 29 June 2012.
In the UK Equity Income space defensive funds such as Invesco Perpetual Income
and Trojan Income
are standout performers, as are Liontrust Special Situations
and Wood’s £900m UK Opportunities portfolio in the IMA UK All Companies sector.
While IMA Global
is one of the most popular sectors of recent years among UK investors, it contains few funds that have delivered above-average returns with below-average volatility.
"It’s about offering something different," said Leyland, who has been deputy manager of the UK fund since March 2008.
"It seems these days that people think you’re only as good as your last quarter, but this is counter-productive. We have a five-year time horizon and largely ignore what’s going on in the macro, instead focusing on the individual company."
"In today’s low-return world, the high, compounding returns that highly cash-generative blue-chip companies with solid balance sheets can produce by reinvesting steadily year after year make these stocks extremely attractive."
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Under the guidance of Wood, the £900m UK Opportunities portfolio has returned 58.7 per cent since its launch in November 2005, compared with 33.18 per cent from its FTSE All Share benchmark and 23.94 per cent from its sector average.
With an annualised volatility of just 14.24 per cent over five years, it is the second-least volatile portfolio in IMA UK All Companies, which has 298 constituents in total.
It is also a top-quartile performer over one and three years.
Global retail funds with the best risk-adjusted returns in recent years tend to be specialist portfolios, concentrating on healthcare or global franchises.
Over five years, Morgan Stanley Global Brands, Investec Global Franchise
and Schroder Medical Discovery
have the highest Sharpe ratios.
Performance of funds vs sector over five years
Source: FE Analytics
The Sharpe ratio determines which investments have the best risk-adjusted performance by measuring a fund's return relative to a notional risk-free investment – in this case, cash.
The difference in returns is then divided by the fund's volatility.
However, more generalised funds have struggled to offer above-average returns with below-average volatility.
"The best in the sector have tended to be those concentrating on consumer staples, but we define quality as broader than this sector alone," said Leyland.
"If you go down that route you only have a handful of companies to choose from, but there’s no reason why we can’t hold industrials and software if we want."
The fund will consist of a concentrated portfolio of 25 to 40 holdings, drawn from both developed and emerging markets, though it currently has no exposure to the latter. The portfolio’s benchmark will be the MSCI AC World Total Return index.
It is open to retail investors, with a minimum investment of £1,000. Like all of JOHCM’s products, it will carry a performance fee of 15 per cent on all outperformance, but its total expense ratio (TER) is yet to be disclosed.
Unlike the UK Opportunities fund, Leyland will be lead manager on this portfolio, with Wood as his deputy.