Infrastructure, the reformation of India and the rotation into value from growth are all themes that the FE Trustnet editorial team are backing in their fund picks for 2017.
We’ve already looked at how last year’s fund picks have fared, which included the likes of Unicorn Mastertrust, Henderson UK Absolute Return and MFM Junior Oils Trust.
Now, with some new faces on the team and a very different backdrop from this time last year, we have a new – and eclectic – list of funds that our journalists are hoping will earn them the winning spot for best fund pick in the new year.
Jonathan Jones – Schroder Recovery
Reporter Jonathan Jones is backing the £875m Schroder Recovery fund, which has been headed up by Kevin Murphy and Nick Kirrage since 2006.
He said: “Value has underperformed like a train over the last 10 years – says Nick Kirrage, co-manager of the fund – so if you are not thinking of rotating into value now you never will.
“While everyone knows it is best to buy low and sell high, doing so is more difficult. Indeed, value investing has become increasingly less popular in recent years as the slow growth, low interest rate environment has led to the steady outperformance of growth stocks.
“But with many analysts telling us this trend is soon to end, now appears to be the right time to buy value, which, if nothing else, has mean reversion on its side.
“After years of underperformance, value companies outperformed this year for the first time since 2012 and for only the third year since the financial crisis.
Performance of indices in 2016
Source: FE Analytics
“As the graph shows, value has outperformed by 18.43 percentage points this year, but remains some 34 percentage points off growth over the last decade.
“Despite the style underperformance over many years, Kirrage and co-manager Kevin Murphy’s £912m Schroder Recovery fund has been a top quartile performer in the IA UK All Companies sector over one, five and 10 years and has beaten the FTSE All Share in four of the last five years.”
Lauren Mason – Investec UK Special Situations
Taking a similar view on value, senior reporter Lauren Mason believes Alastair Mundy’s Investec UK Special Situations fund is an attractive option for 2017.
“As already mentioned above, the FTSE World Value index has limped its way through the last few years, failing to offer the same lure as high-quality, dividend-paying growth companies,” she said.
“Given murmurings of fiscal policy and expectations that inflation will surprise to the upside over the next few quarters, value funds have already started to achieve stellar returns and could well continue to do so – monetary policy and market sentiment permitting.
“Alastair Mundy has been at the helm of Investec UK Special Situations since 2002 and has experienced times of both value euphoria and what he has deemed in previous FE Trustnet articles as ‘value hell’.
“That said, he has still managed to weather periods when his investing style has fallen out of favour reasonably well, having marginally underperformed his sector average over three and five years but significantly outperformed over the last decade.
“Mundy is a deep value investor who sees banks as his ‘comfort blanket’. He currently holds 4 per cent of his portfolio in the ever-struggling RBS, which is down more than 95 per cent over the last decade and down 24.12 per cent over the last year.
“While the fund is perhaps not best-suited to the more cautious investor, it’s worth bearing in mind that Mundy’s penchant for highly unloved companies has led to attractive income pay-outs.
“If an investor had placed £1,000 into the fund a decade ago, they would have received £303.55 in income.”
Anthony Luzio – Jupiter India
Editor of Trustnet Magazine Anthony Luzio believes the worst could be over for India and is therefore backing FE Alpha Manager Avinash Vazirani’s five crown-rated Jupiter India fund.
He said: “India had been flying this year until 8 November when prime minister Narendra Modi announced plans to withdraw all 500- and 1,000-rupee notes from circulation in a bid to tackle corruption – it is estimated that the illegal ‘black economy’ accounts for roughly 23 per cent of India’s GDP.
“This move came as a shock and has resulted in long queues at banks and panic at small businesses, with some hotels complaining they have run out of exchangeable cash. The Jupiter India fund is down by close to 14 per cent since its peak at the end of October.
“However, there are signs the worst may be over and the fund’s manager Avinash Vazirani says that while the move has brought short-term pain, it could prove to be something of a masterstroke over the long term – for example if just 20 per cent of the currency is cancelled this will be enough to wipe out India’s deficit.
“Vazirani adds that the main beneficiaries of this de-monetisation will be public sector banks, in which his fund has several holdings.
“Jupiter India has made 122.83 per cent over the past five years compared with 71.83 per cent from its MSCI India benchmark.”
Gary Jackson – First State Global Listed Infrastructure
FE Trustnet’s editor said: “For 2017 I’m going to be putting more money into the First State Global Listed Infrastructure fund, which is headed up by FE Alpha Manager Peter Meany and Andrew Greenup. The £2.1bn portfolio is invested in utilities, highways and railways, airports services, marine ports and services, and oil & gas storage and transportation across the globe and has built up a strong track record since launch in December 2016.
Performance of fund vs sector and benchmark
Source: FE Analytics
“There are several reasons I like this fund for 2017. I’m looking to diversify outside of the UK, given the uncertainty likely to be caused by the triggering of Article 50 and following negotiations. The fund has just 5.8 per cent of assets in the UK, with 49.9 per cent in the US and 8.3 per cent in Japan.
“Secondly, an obvious beneficiary of governments’ expected move from monetary stimulus to fiscal is the infrastructure sector. Although valuations in this part of the market aren’t at their cheapest, I think the potential boost that would come from an increase in infrastructure could be a powerful driver.
“Finally, I’m looking to diversify away from equities without adding to my absolute return funds and infrastructure is an area I feel my portfolio is lacking exposure.”
Rob Langston - Monks Investment Trust
News editor Langston remains wary of calling what will happen in markets this year, given that investors are likely to face several headwinds during Q1 and Q2
However, he said: “I’ve chosen the Monks Investment Trust for my fund pick, a fund that focuses on global growth stocks held for around five years on average.
“Since taking over the management of the trust in 2015, the Baillie Gifford team behind its global alpha strategy have set about repositioning the portfolio to capture more geographically-diversified growth.
“Led by manager Charles Plowden, and supported by deputy managers Spencer Adair and Malcolm MacColl, the closed-ended fund has made a 34.35 per cent return through to 28 December, compared with an 8.89 per cent return for 2015.
“Currently trading at a narrow discount, Monks Investment Trust offers investors a well-diversified portfolio investing in a number of global themes with a low ongoing charge.
“Despite some of the uncertainty posed by a Trump administration in the US it maintains a heavy weighting to US stocks as part of its confidence in the economy. Technological innovation and Asian consumption, two dominating themes in recent years, also play a key part in the portfolio’s longer-term search for growth.
“Lead manager Plowden has a strong track record, and the onshore Baillie Gifford Global Alpha Growth fund has returned 117.1 per cent in the five years to 30 November.
“The global growth-focused unconstrained strategy should help ensure investors aren’t left too exposed to too many of the potential market challenges expected in 2017.”