Investment advisers expect to channel more money into UK stocks, global equities and multi-asset funds over the coming 12 months, research by Schroders shows, with funds such as Invesco Perpetual High Income, Fundsmith Equity and Jupiter Merlin Balanced Portfolio being some of the most heavily researched recently.
The annual Schroders Adviser Survey found that advisers expect to increase allocations to equities over the next year while trimming their clients’ exposure to fixed income. Developed market equities ex UK appear to be the area where most think they will be lifting exposure.
How advisers expect portfolio allocations to change over the next 12 months
Source: Schroders
As part of the research Schroders also asked advisers which Investment Association sectors they are most likely to be recommending to their clients in 2017. We then used the FE Analytics Market Intel to find out which funds from those sectors advisers have been researching the most over the past three months.
In the following article, we look at the five most tipped sectors by advisers and the 10 funds that they’ve spent their time researching from each.
IA Targeted Absolute Return
In fifth place is the IA Targeted Absolute Return sector, which has been one of the industry’s most popular peer groups over the past year due to a heightened sense of nervousness over events such as the Brexit referendum and the US presidential election.
Source: FE Analytics Market Intel
As the above table shows, it’s the Standard Life Investments Global Absolute Return Strategies fund – which is the sector’s largest member with assets of £26.3bn – that has been the most researched fund over the past three months.
That the fund (which is more commonly known as GARS) is the most popular with professional investors comes as little surprise as it is often seen as the default option in the space and is already found in many portfolios. While GARS has a solid long-term track record, it has struggled in 2016 and has posted a 3.08 per cent loss over the year to date.
Newton Real Return, another of the sector’s mainstays, is in second place. The £9.7bn fund prioritises preserving investor capital and has posted positive returns in nine of the past 10 calendar years, as well as making 2.59 per cent over 2016 to date.
Three funds launched by former members of the GARS team are also proving popular with advisers: Invesco Perpetual Global Targeted Returns, Aviva Investors Multi Strategy Target Return and Aviva Investors Multi Strategy Target Income. All three employ a similar approach to GARS, building their portfolios around a number of themes or ideas and offering exposure to a diverse mix of assets.
JPM Global Macro Opportunities, which the FE Invest team recently introduced to its portfolios as a replacement to GARS, has also been heavily researched by advisers, as have long/short equity offerings like Henderson UK Absolute Return and Kames UK Equity Absolute Return.
IA Global
Next up is the IA Global sector, which is one of the largest peer groups in the Investment Association universe and has benefited from investors seeking to allocate away from the domestic market after the Brexit result.
Source: FE Analytics Market Intel
FE Alpha Manager Terry Smith’s £8.6bn Fundsmith Equity fund tops the table here and is actually the most researched fund out all of the Investment Association sectors over the past three months.
The fund has built an impressive track record since launch in November 2010, earning investors a 183.50 per cent total return – the highest in the sector – on the back of Smith’s clear focus on quality-growth stocks. In addition, it has some of the sector’s lowest maximum drawdown and annualised volatility numbers since launch.
In second place is the £2bn First State Global Listed Infrastructure fund, which is headed up by Peter Meany and Andrew Greenup. While concentrating on a specialist area of the market, the fund has become popular with professional investors thanks to strong performance numbers while talk of shift towards fiscal stimulus has buoyed investor sentiment towards infrastructure.
Rathbone Global Opportunities is another fund with a strong reputation as FE Alpha Manager James Thomson’s stock picking skills and preference for growth businesses have generated high returns (106.02 per cent over five years), while investors eyeing a continued resurgence in value investing have turned their attention to Jeremy Podger’s Fidelity Global Special Situations fund.
While all of the above are run by active managers, one entrant on the list is a passive strategy. Vanguard LifeStrategy 100% Equity offers exposure to global equity markets through underlying Vanguard trackers and is outperforming the average IA Global fund over one, three and five years.
IA UK All Companies
While there are signs from the Schroders survey that professional investors are looking less at UK equities (the number expecting citing IA UK Equity Income as their most recommended sector has fallen from 9 per cent in 2015 to 5 per cent this year), the IA UK All Companies is their third most popular sector.
Source: FE Analytics Market Intel
The continued popularity of the sector is of little surprise: most UK investors will still want a decent weighting to home shores in their portfolio, the sector is the largest in the Investment Association universe and is home to some of the most popular funds – including a number that used to reside in the IA UK Equity Income sector.
In fact, three of the 10 most researched funds were formerly in the IA UK Equity Income sector, including the most popular: FE Alpha Manager Mark Barnett’s Invesco Perpetual High Income fund. The fund has a strong long-term track record under Barnett and previous manager Neil Woodford but has slipped into the sector’s bottom quartile over the year to date on the back of the outperformance of cyclicals, which it is underweight.
CF Lindsell Train UK Equity, helmed by FE Alpha Manager Nick Train, is the second most researched fund. This is another that has achieved strong outperformance thanks to its focus on quality-growth companies. The £3bn fund, which is built around a concentrated portfolio of about 20 companies that rarely changes, has beaten the FTSE All Share in every full calendar year since 2008 but is lagging during 2016.
Interest in the value investing style, which has underperformed growth by a wide margin for a number of years but has bounded back this year, is also clear from the list of most researched funds.
Liontrust Special Situations, M&G Recovery, JOHCM UK Opportunities and Investec UK Special Situations are all funds that have a value tilt to their portfolios and are headed by well-known managers such as M&G’s Tom Dobell and Investec’s Alastair Mundy.
IA Mixed Investment 40%-85% Shares
The Schroders survey found that more than half of advisers now outsource some of their investment business to external providers and this is backed up by this multi-asset sector being one their expected to recommend in 2017.
Source: FE Analytics Market Intel
The most researched product is another from Vanguard’s passive line of multi-asset funds. Vanguard LifeStrategy 60% Equity is built from underlying trackers and is automatically rebalanced to keep the target 60 per cent equity and 40 per cent fixed income allocation in place.
Another member of the stable – Vanguard LifeStrategy 80% Equity – is fourth place. Both of these passive funds sit in the IA Mixed Investment 40%-85% Shares sector’s top quartile over one, three and five years.
Jupiter Merlin Balanced Portfolio, run by the FE Alpha Manager duo of John Chatfeild-Roberts and Algy Smith-Maxwell, has been the second most researched fund here.
Jupiter’s Merlin team has a strong following in the industry and their portfolios are designed to act as ‘one-stop shops’, owning popular funds such as CF Woodford Equity Income, AXA Framlington UK Select Opportunities and Fundsmith Equity.
Premier Multi-Asset Growth & Income is another popular option. The team behind it (David Hambidge, Ian Rees, Simon Evan-Cook and David Thornton) have a strong focus on value, which means the portfolio often holds funds and assets than more mainstream offers could have overlooked.
IA Mixed Investment 20%-60% Shares
The sector that most advisers told Schroders they would be recommending in 2017 is IA Mixed Investment 20%-60% Shares, showing the popularity of outsourcing investments but also the ongoing search for yield.
Source: FE Analytics Market Intel
Paul Causer, Paul Read and Ciaran Mallon’s £3.2bn Invesco Perpetual Distribution fund has been the most researched member of this peer group. The £3.2bn fund, which invests directly in equities and bonds, is in the sector’s top quartile over five years but in the fourth quartile on its one- and three-year numbers.
Causer and Read are the co-heads of fixed income at Invesco Perpetual and oversee the portfolio’s fixed income allocation. They have a strong reputation as bond investors and have maintained a defensive position for some time, which has hampered returns when bonds have continued their bull run.
Another Jupiter Merlin fund is in second place: Jupiter Merlin Income Portfolio. It’s the second largest member of the sector after Invesco Perpetual Distribution and offers exposure to some of the most popular income funds, such as CF Woodford Equity Income, Invesco Perpetual UK Strategic Income, M&G Global Dividend and Jupiter Strategic Bond.
Premier Asset Management has two funds in the list and both have income mandates: Premier Multi-Asset Distribution and Premier Multi-Asset Monthly Income. They are run by the successful team headed by David Hambidge and are top quartile over three and five years.
A passive offering in the form of Vanguard LifeStrategy 40% Equity is also on the list but active funds such as Henderson Cautious Managed, CF Ruffer Total Return and Kames Ethical Cautious Managed have also been heavily researched by professional investors recently.