Skip to the content

The specialist funds analysts love but you could be ignoring

07 May 2016

A number of funds are highly rated by the FE Research team and have delivered a strong long-term performance, but reside in in the ‘mixed bag’ IA Specialist sector. FE Trustnet puts some under the spotlight.

By Lauren Mason,

Reporter, FE Trustnet

Several funds have delivered strong returns, have good risk metrics and are highly rated by the FE Research team but may have gone unnoticed by most investors, given that they reside in the IA Specialist sector.

Data from FE Analytics shows there are 61 funds with an FE Crown rating of four or more within the ‘mixed bag’ sector and more than half of these have achieved the top five crown rating.

However, many investors may be put off of delving under the bonnet of the sector to look for attractive investments, given that it covers such a broad spectrum of different fund types and many of these are rather niche.

This could mean that investors have missed out though, especially at the moment given that it was the top-performing Investment Association sector last month.

“[This] is down to the fact that this bag of misfits is where commodity funds and regional emerging market funds – notably those investing in Latin America – lurk,” Tilney Bestinvest’s Jason Hollands explained.

“Commodities have staged a surprisingly strong rally in recent months from their nadir – with some fingers pointing at the influence Chinese private investors punting commodity futures – but above all it was niche funds investing in gold mining equities that shot the lights out during the month.”

Another difficulty with the sector is that it isn’t possible to benchmark the funds against their average peer’s performance, given that there is such a wide variety of funds grouped together under one category.

As such, we take a look at a selection of specialist funds held in high regard by the FE Research team that have shot the lights out over the longer term but may have been missed by investors.  

 

Jupiter India

First up is FE Alpha Manager Avinash Vazirani’s Jupiter India fund, which is £405m in size and aims to achieve growth through stocks in India as well as Pakistan, Sri Lanka and Bangladesh, so long as a significant proportion of their business derives from the country.

The fund currently has 88 holdings which have been chosen with the aim to hold them for between five and six years. As such, Vazirani (pictured) looks to buy into quality businesses that are likely to grow their earnings, although he seeks to buy them at attractive valuations.

In terms of sectors, the fund’s largest weighting is currently consumer products at 21.41 per cent, followed by financials at 19.42 per cent and services at 12.78 per cent.

As a general rule the manager will avoid commodities as he says it is difficult to accurately analyse commodity cycles. While this has bruised the fund somewhat over the last month – it has made a loss of 1.46 per cent over this time frame compared to the MSCI India index’s return of 0.41 per cent – it has stood it in good stead over the longer term.

Over three years, the fund has outperformed its benchmark by 11.72 percentage points respectively with a total return of 42.7 per cent.

Performance of fund vs sector and benchmark over 3yrs

 

Source: FE Analytics

However, it has a maximum drawdown – which measures the most money lost if bought and sold at the worst times – of 25.71 per cent and a significantly higher annualised volatility than the index over the same time frame.

“This is a punchy way to invest in India for those who have a strong conviction in the country,” the FE Research team said.

“The fund has around 50 per cent in small and mid-sized companies which adds volatility to the fund, although Vazirani’s focus on value and quality businesses means that the fund doesn’t do as bad in falling markets as this might suggest.”

Jupiter India has a clean ongoing charges figure (OCF) of 1.1 per cent.

 


CF Ruffer Pacific

The next fund on the list is CF Ruffer Pacific – a £289m investment vehicle that has been run by FE Alpha Manager Mary McBain since 2006.

The fund’s portfolio consists of 77 holdings, 35 per cent of which are Chinese stocks and 10 per cent of which are Sri Lankan. The fund also has smaller weightings in Japan, Hong Kong, the Philippines and Singapore among other regions, as well as holding 7 per cent in gold investments and 8 per cent in cash.

Not only does McBain believe that a good understanding of the local economy is important, the manager also adopts a bottom-up stock picking process when choosing holdings and looks for resilient and high-quality businesses with healthy balance sheets.

This has meant that the fund has a downside risk – which measures the potential capital lost during a down market – of 13.57 per cent compared to its MSCI AC Asia Pacific benchmark’s downside risk of 18.66 per cent over the manager’s tenure. It also has a lower annualised volatility and less than half of the maximum drawdown over the same time frame.

It has also delivered a consistently strong performance over one, three five and 10 years, outperforming its benchmark by more than six times over the last decade.

Performance of fund vs benchmark over 10yrs

 

Source: FE Analytics

CF Ruffer Pacific has a clean OCF of 1.28 per cent.

 

BlackRock Natural Resources Growth & Income

BlackRock Natural Resources Growth & Income has been headed up by FE Alpha Manager Tom Holl since its launch in 2011, who has since been joined by co-managers Alastair Bishop and Skye Macpherson within the last six months.

The £35m fund invests in stocks that are in either the energy, mining or agriculture areas of the market and is able to invest across the globe – some of its largest holdings include BP, Glencore and Barrick Gold.

Given the recent rally in commodity prices, the fund has provided a total return of 17.68 per cent since the start of the year, outperforming the MSCI AC World index by more than eight times.

However, its performance has suffered over recent years given the collapse in commodity prices, having underperformed the index significantly on an annualised basis in 2012, 2013, 2014 and 2015.

This means that, since launch, the fund has provided a loss of 16.4 per cent compared to the index’s return of 43.85 per cent.

Performance of fund vs benchmark since launch

 

Source: FE Analytics

However, the FE Research team says that the fund, which looks for companies with recurring cash flows, has a favourable portfolio construction process as it keeps its number of stocks to a minimum which means that every holding significantly contributes to the portfolio’s performance.


“This concentration could be double-edged, though, because any issue with a single share will have an equally large impact,” it warned.

“The income part of the fund is boosted by the limited use of call options on stocks it holds.”

BlackRock Natural Resources Growth & Income has a clean OCF of 0.98 per cent and yields 3.7 per cent.

 

Aberdeen Latin American Equity

Aberdeen Latin American Equity was launched in 2011 and is ran by the Aberdeen Global Markets Equity team collectively, which consists of 40 investment professionals.

The team also has a Latin American sub-team, which aims to find long-term high-quality stock picks to make up the fund’s concentrated portfolio, which will usually holds around 35 names.

The £138m fund has made a loss over one, three and five years due to the vast number of headwinds that LatAm has faced over this time, but it has managed to consistently outperform its MSCI Emerging Markets Latin America index regardless.

Given that emerging markets have reaped the benefits of a rebound year-to-date, the fund has returned 27.71 per cent since the turn of 2016 and outperformed its benchmark by 6.5 percentage points. This is also an outperformance of the MSCI AC World index of 26.24 percentage points.

Performance of fund vs benchmark and index in 2016

 

Source: FE Analytics

Unsurprisingly though, the fund has a maximum drawdown of 54.9 per cent since its launch and a high level of volatility at 22.68 per cent, although this is marginally lower than its benchmark’s 22.8 per cent volatility over the same time frame.

“This fund clearly benefits from Aberdeen’s status as one of the industry’s largest emerging market investors; the team has plenty of resources and shared analysis available when making investment decisions,” the FE Research team said.

“While the team’s consensus approach can lead to some lag between identifying an opportunity and actually investing, this helps to reinforce its buy-and-hold mentality.”

Aberdeen Latin American Equity has a clean OCF of 1.28 per cent.

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo 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.