Funds for the next QE bull run
With the BoE approving an additional £50bn tranche of quantitative easing, FE Trustnet asks industry experts which funds they think are likely to benefit.
By Joshua Ausden, News Editor, FE Trustnet
Thursday July 05, 2012
In spite of the negative effect eurozone tensions have had on equity markets, it is still higher-risk funds that top the performance tables over a three-year period, thanks to the rallying market during the 2009 and 2010 QE-fuelled bull run.
At the top of the UK All Companies sector, for example, sit the likes of MFM Slater Growth
, Neptune UK Mid Cap Growth
and Cavendish Opportunities
, which all have a small to mid cap bias.
While macro headwinds continue to plague the markets and many expect volatility to continue, the expected injection of cash into the system via another tranche of quantitative easing may have a similar impact on risk-averse funds.
Here is a selection of funds industry professionals think could benefit from the stimulus:
Standard Life Inv UK Equity Unconstrained
"This fund, managed by Ed Legget, is one that tends to do well when markets are on the up," said Richard Troue, fund analyst at Hargreaves Lansdown.
"It is invested in cyclical companies, or those that are more dependent on the economy doing well. If you look at the league tables, it tends to be somewhere near the top during big spikes in performance."
Performance of fund vs sector over 3-yrs
Source: FE Analytics
According to FE data, Standard Life Inv UK Equity Unconstrained is a top-10 performer in its IMA UK All Companies
sector over three years, with returns of 81.77 per cent.
In the first quarter of this year, when the markets reacted favourably to the long term refinancing ope
ration (LTRO), the fund topped its sector with returns of 23.08 per cent, compared with 8.82 per cent from the IMA UK All Companies average.
"This isn’t to say it’s just packed full of miners or oil companies though; the manager looks for companies with robust models and growth potential, so it’s a mix of cyclical and quality," added Troue.
The £403m fund has a total expense ratio (TER) of 1.9 per cent.
Smith & Williamson Global Gold & Resources
Troue thinks the added stimulus could have a dual effect on gold stocks.
"While it’s not yet clear how much effect just the UK stimulus will have, it could have an impact on both the gold price and equities in general," he said.
"The effect could be particularly potent given the gap between the gold price and gold equities recently."
Gold tends to do well when currencies are debased and with the possibility of further stimulus from the ECB and the Fed, Troue says the price of bullion could be set for another surge.
He highlights Robert Lyon and Ani Markova’s Smith & Williamson Global Gold & Resources portfolio as a good option.
"Gold companies, particularly small and mid caps, have been extracting a lot of produce and generated good cash flow, but this hasn’t yet been reflected in the share price."
"Something like Smith & Williamson Global Gold & Resources, which has an excellent team out in Canada and a mid cap focus, could be due a strong run."
Performance of fund vs gold price over 3-yrs
Source: FE Analytics
The fund had a great run in 2009 and 2010, but the recent poor performance of gold equities has seen its three-year figure fall to 49.25 per cent.
It has a TER of 1.85 per cent and AUM currently stand at £61.5m.
Schroder UK Growth
James Brown, investment trust analyst at Winterflood, believes Richard Buxton’s
£202m closed-ended vehicle could be set for a boost.
"This is the sort of trust that could benefit," he said. "It’s a highly concentrated portfolio, with a lot of exposure to materials, mining, consumer and banks, which are all cyclical in their own way."
"Schroders has always been a bit less aggressive in its gearing since 2008 because this trust got burnt, but it’s more geared than most."
Performance of trust vs index over 10-yrs
Source: FE Analytics
Buxton’s portfolio is currently 11 per cent geared. It has returned 96.43 per cent since Buxton took over as manager in December 2002, beating its FTSE All Share benchmark by 4.43 per cent.