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The experts’ funds for aggressive investors to hold for 2017

30 December 2016

In the final article of the series, FE Trustnet finds out which funds a panel of investment commentators think more adventurous investors should consider for the coming year.

By Gary Jackson,

Editor, FE Trustnet

A global smaller companies fund, a US mid-cap portfolio and a UK investment trust with a discount of more than 20 per cent are among the funds that experts think could be attractive for aggressive investors next year.

Over the past week, we’ve looked at funds for cautious and balanced investors – with offerings such as Personal Assets, Invesco Perpetual Global Targeted Returns and Threadneedle Global Select being suggested.

In this article, we ask the same panel of investment commentators about the funds for more aggressive investors who have high total returns in mind rather than capital preservation.

Standard Life Investments Global Smaller Companies

First up is this £391.1m fund, which is headed up by Alan Rowsell and FE Alpha Manager Harry Nimmo. It favours quality, growing companies that have the ability or potential to be future leaders in their fields and top holdings include Align Technology, Balchem and Teleperformance.

Explaining her reasons for choosing the fund, Square Mile’s Amaya Assan highlights the management team behind the portfolio. Rowsell has responsibility for day-to-day management of the portfolio, while UK smaller companies veteran Nimmo gives input on UK stock selection and helps ensure it is run in line with the process.

Performance of fund vs sector since launch

 

Source: FE Analytics

“With a starting investment universe as large as this it is crucial to be able to efficiently narrow it down to a more manageable number. We like that the managers are able to do this by making use of a number of tools, including sticking to a strict investment philosophy, a quantitative screening tool and being able to utilise the resources not only of the team but also of the wider firm,” Assan said.

“Ultimately, however, it is the fund's management team that will drive the success of the strategy and here we consider Mr Rowsell and his colleagues to be more than up to the task. Mr Rowsell clearly has a very good understanding of his asset class, and shows a deep commitment to the fund's investment philosophy and process. In essence this could be viewed as a lower risk way to access the global smaller companies asset class.

“We would expect its quality growth bias to add value for investors over the long term and help minimise losses when investor sentiment turns sour; though there will be undoubtedly times when it struggles e.g. when its investment style falls out of favour or at inflection points in the market.”

Between launch and the time of writing (22 December 2016), the fund made a 106.93 per cent total return, putting it in the second quartile of the IA Global sector and about 35 percentage points ahead of its average peer.

Standard Life Investments Global Smaller Companies has a clean ongoing charges figure of 1.06 per cent.


 

Schroder US Mid Cap

Adrian Lowcock, investment director at Architas, argues that the election of Donald Trump as US president offers aggressive investors some interesting opportunities in US mid-caps and opts for this £1.8bn fund, which is run by FE Alpha Manager Jenny Jones.

“If Donald Trump delivers on many of his promises then mid-caps will benefit from the increased fiscal spending and the more domestic focus. However, the sector has rallied at the end of 2016 so investors need an active manager to separate the wheat from the chaff,” he said.

Performance of fund vs sector and index under Jones

 

Source: FE Analytics

“Schroder US Mid Cap is a US small- and mid-cap fund managed by a very experienced and well-resourced investment team led by veteran investor Jenny Jones.  Jones is a cautious investor and believes avoiding losses is essential for growing capital over the long term.

“This approach will cause the fund to lag during strong bull markets but over time has proved successful. The team conduct bottom-up analysis to find companies that fit into one of three categories: steady eddies, turnarounds or under-appreciated growth.”

Since Jones took over the fund in April 2005, it has made a top-decile 385.03 per cent and beaten its Russell 2500 benchmark by close to 70 percentage points. As noted by Lowcock, it has a strong track record in downside protection: its maximum drawdown of 21.34 per cent is the lowest in its sector and is well below the 35.32 per cent fall posted by the index.

The fund’s biggest overweight is to consumer discretionary stocks and its four largest holdings – Aramark, Kar Auction Services, Phillips-Van Heusen and Advance Auto Parts – hail from the sector. It is also overweight healthcare and technology, with underweights to financials, producer durables and materials.

Schroder US Mid Cap has a 0.91 per cent clean OCF.


 

Henderson Opportunities

Alex Paget, research analyst at Kepler Partners, says that FE Alpha Manger James Henderson’s £31.7m Henderson Opportunities investment trust could be attractive for investors willing to stomach potentially high volatility in search of strong long-term gains.

“Henderson (who we rate highly) runs a truly-unconstrained portfolio and will allocate capital across the market-cap spectrum. For example, he has some 70 per cent invested outside of the FTSE 100 – and has had a pretty tough 2016 as a result of investors have largely avoiding UK mid- and small-caps due to Brexit concerns,” Paget said.

Performance of trust vs sector and benchmark under Henderson

 

Source: FE Analytics

“At this stage, it is difficult to paint a positive picture for the UK market and economy with all the collywobbles surrounding the EU referendum and therefore this trust could continue to struggle over the short term. However, Henderson, who is by nature a contrarian and looks for value or growth that has been overlooked by the market, is a true stock-picker and has proven his ability to add value over time.

“What’s more, a fairly disastrous 2016 has left the trust trading on a significant 22 per cent discount to NAV. There is no formal discount control mechanism and therefore it could widen further, though one of the last times it traded at this level was in October 2012 – over which time it has delivered a NAV return of 80 per cent and a share price total return of 90 per cent, significantly outperforming the wider UK equity market in the process.”

The trust’s largest weighting is to industrials, followed by consumer services, healthcare and technology. Its top holdings are 4d pharma, Ricardo, HSBC, RWS and e2v technologies.

Henderson Opportunities has ongoing charges of 1.02 per cent (plus a performance fee), is 13 per cent geared and is yielding 2.3 per cent.

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