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Top-performing young funds that should be on your radar

Getting in early can make a big difference to long-term returns, and ensures you don’t miss the boat entirely if it closes to new money early on.

Daniel Lanyon

By Daniel Lanyon, Reporter
Thursday June 19, 2014

Three-year track records are seen by many investors and financial advisers as a minimum guide to a fund’s prowess. Without it, many are unwilling to invest, no matter how highly rated the manager is.

ALT_TAG There are some serious drawbacks to this line of thinking, however. Funds are at their nimblest in the early years, and in many cases deliver their highest rate of outperformance before they are three years old.

Moreover, funds with a limited capacity sometimes close to new money early on, meaning that investors who wait for three years end up missing out on them altogether. In some cases, those that get in early are able to add to their positions even after the funds have soft-closed.

Examples of funds that have closed prior to their third birthday in recent years include Gervais Williams’ £397m CF Miton UK Multi Cap Income fund and FE Alpha Manager Giles Hargreave’s Marlborough Nano Cap Growth fund.

Chris Wise (pictured), investment director for Gemmell Financial Services, says investors should consider buying into a recently launched fund – especially if its process and style fit in with their objectives.

“The vast majority of the funds we hold do have that longer-term track record, but we do on occasion buy into funds at an early stage either because of the investment remit or because the fund is managed by a particular investment house or fund manager who has a great track record,” said Wise.

“If the fund invests in a particular area such as frontier markets and you think there is a good reason to invest there, a new fund would be the way to go.”

“If a newly launched fund is run by a manager with a good track record and has an investment process that you’re comfortable with, you don’t have to wait for a three-year record.”

With this in mind, here are several UK, emerging markets and global funds that are young, nimble, performing strongly, and in some cases, gathering assets at a fast pace.


UK

A number of funds in the IMA UK Equity Income sector have performed well and garnered a lot of interest from investors, despite having not reached their third birthday.

The £981m Marlborough Multi Cap Income fund, £452m Majedie UK Income fund, and £47m MFM Slater Income fund are all top-quartile performers since the Majedie portfolio was launched in December 2011.

Performance of funds and sector since Dec 2011

ALT_TAG

Source: FE Analytics

Miton UK Value Opportunities, co-managed by Georgina Hamilton and George Godber, has been steadily increasing in size to £63m since its launch in July 2013. It has returned 24.48 per cent over the period, beating the average return in the IMA UK All Companies sector by more than 10 percentage points.


Godber is one of the highest-rated genuine deep value managers in the UK, building his reputation at Matterley alongside FE Alpha Manager Henry Dixon, who now works at GLG.

The £74m City Financial UK Opportunities portfolio, headed up by FE Alpha Manager Leigh Himsworth, is also less than three years old but has a strong record of outperformance, putting it in a top-quartile position since its launch in September 2011.

All of the funds mentioned here have a bias towards small and mid caps – particularly the City Financial and Marlborough funds, which have no FTSE 100 exposure in their top-10. At almost £1bn, the Marlborough Multi Cap Income fund is particularly susceptible to a closure.

Performance of fund and sector since Dec 2012


ALT_TAG

Source: FE Analytics

Williams’ CF Miton UK Smaller Companies fund is another that has got off to a great start. Since its launch in December 2012, it has returned 74.42 per cent, making it the best performer in its IMA UK Smaller Companies sector by some distance.

Inflows into the fund have accelerated since the manager’s income product was closed to new money. Assets currently stand at £182m.


Emerging markets


Three young funds that invest across emerging markets and Asia are top quartile performers in their respective sectors since launch: Hermes Asia ex Japan Equity, Matthews Asia Chinese Smaller Companies and Standard Life Global Emerging Markets Equity Income.

The $665m Hermes Asia ex Japan Equity fund, managed by Jonathan Pines, has returned 32.44 per cent since its launch, more than three times the average return in the sector.

By comparison, the average return in the sector over this period has been 10.15 per cent and the MSCI Asia Pacific ex Japan index has risen 9.78 per cent.

Performance of fund and sector since Nov 2012

ALT_TAG

Source: FE Analytics

As well as outperforming, the fund has been less volatile and protected much better against the May and June sell-off of last year. These characteristics are most associated with heavyweights Aberdeen Asia Pacific and First State Asia Pacific Leaders, which have both fallen short of their much smaller rival.

The Hermes fund is $665m in size, suggesting there is much more in the way of capacity.


While still very small at $2m, the Matthews Asia Chinese Smaller Companies fund is likely to have to curb inflows much more actively. It has started very well, significantly outperforming its sector since its launch in February 2012 with returns of more than 16 per cent. The IMA China sector is up just 3.84 per cent over the period.

The £300m Standard Life Global Emerging Markets Equity Income fund has attracted assets much more aggressively, having been launched less than 18 months ago.

Its quality income focus has worked well, seeing it return 9.62 per cent since inception compared with a loss from the IMA Global Emerging Markets sector average. This puts it fourth among its peers overall.

Performance of fund and sector since Jan 2013

ALT_TAG

Source: FE Analytics

The Standard Life fund’s size and stability are big draws for investors, and among the reasons why Hawksmoor’s Daniel Lockyer has chosen it above rivals such as Somerset Emerging Markets Dividend Growth and Charlemagne Magna Emerging Markets Dividend.


Global

The R&M World Recovery fund is managed by the hugely experienced Hugh Sergeant, who made his name running money at GLG. His reputation and very strong start have seen assets under management grow to more than £176m since its launch in March last year.

It has delivered almost 40 percentage points more than the average return of IMA Global over this period, putting it at the very top of a sector comprising more than 250 funds.

Performance of fund, sector and index since Mar 2013

ALT_TAG

Source: FE Analytics

Sergeant’s deep value bias often leads him down the market cap spectrum, meaning that the capacity of the fund is much lower than most of its competitors.

This article is for professional investors only. You will be redirected to the News & Research homepage in seconds. If you are having problems getting to the page, please click here
Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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