Woodford Equity Income, Man GLG Undervalued Assets and Wood Street Microcap are among the funds that could be worth adding to portfolios after Philip Hammond’s first – and only – Autumn Statement as chancellor, according to Chelsea Financial Services' Darius McDermott. 
Hammond presented his statement to the House of Commons yesterday, offering a relatively downbeat assessment of UK economy that included lower growth forecasts and higher public borrowing over the years ahead.
However, there were some elements that could yield profits for investors and in the following article Chelsea managing director McDermott picks a number of funds that he thinks could be attractive after the chancellor revealed his plans.
Man GLG Undervalued Assets
Hammond's plans include a £2.3bn housing infrastructure fund to help provide 100,000 new homes in high-demand areas and £1.4bn to deliver 40,000 extra affordable homes.
McDermott says the £488.5m Man GLG Undervalued Assets fund could be a beneficiary of this thanks to its sector positioning and bias towards small- and mid-cap stocks, which tend to be more exposed to the domestic economy.
Performance of fund vs sector and index since launch
Source: FE Analytics
“With more money set aside for affordable housing and supporting local infrastructure, house builders should again get a boost. This fund has Bovis and Bellway amongst its top 10 holdings,” he said.
“Managers Henry Dixon and Jack Barrat have a value style of investing and can have significant weightings in small- and medium-sized UK companies.”
Since launching the fund in November 2013, Dixon has made a first-quartile 22.50 per cent total return and outpaced the FTSE All Share’s 15.83 per cent rise. This outperformance came at time when the value investing style was out of favour.
The fund’s largest overweight is to the real estate companies (7.37 percentage points over the FTSE All Share). Given the value bias, the portfolio is more skewed towards pro-cyclical inflationary stocks than defensive ones.
Man GLG Undervalued Assets has a clean ongoing charges figure (OCF) of 0.90 per cent and yields 2.06 per cent.
VT UK Infrastructure Income
A large part of the Autumn Statement was dedicated to infrastructure. The new £23bn National Productivity Investment Fund will focus smaller, local initiatives in the infrastructure and innovation arenas in a bid to bolster economic growth and alleviate the UK’s productivity gap.
For his second pick, McDermott has opted for a relative newcomer to play this theme as the £54.7m VT UK Infrastructure Income fund launched in January this year. Since the fund’s inception, it has a made a 9.24 per cent total return; sector rankings are not appropriate as it resides in the IA Specialist sector.
Performance of fund vs sector and index since launch
Source: FE Analytics
McDermott said: “It invests in UK infrastructure projects and targets a yield of around 5 per cent, which will appeal for investors looking for more than the 2.2 per cent gross interest promised via the new NS&I product next year, and willing to take on more risk to achieve those potentially better returns.”
Some 70 per cent of portfolio is made up of infrastructure funds and companies, with 16 per cent in equities, 10 per cent in Reits and 4 per cent in bonds. It currently counts the likes of GCP Infrastructure, Bluefield Solar Income, Renewables Infrastructure Group, Greencoat UK Wind and John Laing Infrastructure as top 10 holdings.
VT UK Infrastructure Income has a 0.75 per cent OCF but is too young to have a yield.
Wood Street Microcap Investment
McDermott notes that tax breaks announced in the Autumn Statement will offer a “boost” to the UK’s smaller companies and picks this £60.8m fund as a potential way to play this trend. He also points out that it has exposure to technology stocks, which could benefit from plans to support digital infrastructure and innovation.
“This a highly concentrated, high conviction UK micro-cap fund, which has been managed by Ken Wotton since its launch in 2009, with the support of the 40-strong specialist team at Livingbridge,” he said. “It has a number of holdings in software and digital businesses.”
Performance of fund vs sector since launch
Source: FE Analytics
FE data shows the fund lagged its average IA UK Smaller Companies peer in its earlier years but is now outperforming and has made more than 200 per cent for investors since inception.
The fund’s largest holding is cloud computing solutions provider Nasstar, followed by PR & digital marketing agency Next Fifteen and software quality specialists SQS Software. Just over 30 per cent of assets are held in technology, media and telecommunications stocks.
Wotton, who is an FE Alpha Manager, argues that the recent underperformance of UK small-caps has created a buying opportunity: “In an environment when returns on most asset classes are low and where larger cap equities are close to historically high valuations, we see relative value opportunities in small- and micro-cap stocks which continue to trade at a material discount.”
Wood Street Microcap Investment has a clean OCF of 1.01 per cent and yields 0.70 per cent.
CF Woodford Equity Income (and Woodford Patient Capital)
Hammond’s statement included promises to invest an additional £2bn a year into research & development by 2020. This plan involves the creation of a new Industrial Strategy Challenge Fund, which appears to be modelled on the US’ Defense Advanced Research Projects Agency.
One manager who may benefit from this is Neil Woodford, through his exposure to small, innovative businesses through his Woodford Equity Income fund and Woodford Patient Capital trust.
McDermott said: “Neil Woodford has a well-publicised liking for science research and development and has been a long-term supporter of our universities and fledgling companies. The tail of his open-ended fund and his investment trust may well benefit from the increased support and funding for this area of the UK economy.”
Performance of fund vs sector and index since launch
Source: FE Analytics
Since its launch in June 2014, the £9.3bn CF Woodford Equity Income fund has been the IA UK Equity Income sector’s best performer with a 25.25 per cent total return. Although its top 10 includes large-names usually associated with the FE Alpha Manager (like GlaxoSmithKline, Imperial Brands and British American Tobacco), he also invests further down the market-cap spectrum.
His Woodford Patient Capital investment trust is more focused on this area thanks to its aim of supporting early-stage and early-growth companies. This portfolio has around 85 per cent of assets held outside the large- and mid-cap spaces, with a bias towards healthcare – one of Woodford’s preferred hunting grounds.
CF Woodford Equity Income has a clean OCF of 0.75 per cent and yields 3.38 per cent. Woodford Patient Capital has ongoing charges of 0.18 per cent; it does not charge a management fees but applies a 15 per cent performance fee on any excess NAV returns over a 10% cumulative hurdle rate per annum, subject to a high watermark.