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Six building-block funds for a diversified portfolio

The Share Centre investment research analyst Sheridan Admans lists six strategies that investors should consider for a more balanced approach to investing.

Rob Langston

By Rob Langston, News editor, FE Trustnet
Monday February 13, 2017

Investors should consider funds such as Fundsmith Equity, First State Global Listed Infrastructure and Polar Capital Global Insurance for a diversified portfolio, according to The Share Centre.

Despite optimistic signs for the UK and US blue-chip markets more recently, higher levels of uncertainty continue to plague outlooks for the year ahead.

Below, Sheridan Admans, investment research analyst at The Share Centre, details six funds that could provide diversification for investors.

CF Miton US Opportunities

The investment research analyst’s first pick is the £263.3m CF Miton US Opportunities fund, managed by Hugh Grieves and Nick Ford.

The four FE Crown-rated fund aims to achieve long-term total returns through investment in North American equities.

Admans said: “US markets have rallied on the strength of what has been termed the ‘Trump Trade’ and his pro-business rhetoric.

“When combined with the Federal Reserve’s recent rate rise, all the indications are pointing to a strengthening US economy.

“This particular fund gives investors an opportunity to benefit from this US recovery by investing primarily in North American equities, which are seen to have a competitive advantage.”

He added: “The managers believe that companies with regular and growing cash flow are more likely to deliver attractive returns than immature businesses looking to develop new products or relying on one-off events.”

Performance of fund vs sector & benchmark since launch

 

Source: FE Analytics

The fund has returned 76.59 per cent over three years compared with a 64.21 per cent return for the average IA North America sector fund. The fund has an ongoing charges figure (OCF) of 0.85 per cent.


First State Global Listed Infrastructure

A top pick for a number of investors particularly in the low income environment, the £2.3bn First State Global Infrastructure fund has continued to draw plaudits.

The five crown-rated fund, co-managed by the FE Alpha Manager duo of Peter Meany and Andrew Greenup, aims to provide income and growth by investing in infrastructure companies around the world, although it does not invest in the assets directly.

Admans said: “Infrastructure is perceived by many as being defensive, with mature businesses offering a steady and reliable level of income which can often have inflationary pricing linked in proving attractive for investors.

“The First State Global Listed Infrastructure fund seeks investment opportunities from around the world, but most importantly to note is that half of its portfolio is geared towards the US.

“Our view is that most developed economies have significantly under-invested in their infrastructure presenting opportunities.

“To remain competitive, economies such as the US, have to invest to update their infrastructure to enable more reliable, efficient strategic assets like road, rail, sea ports, gas, electric and water utilities.”

Performance of fund vs sector since launch

 
Source: FE Analytics

It has returned 152.85 per cent since launch in October 2007, compared with a 78.21 per cent gain for the FTSE Global Core Infrastructure 50/50 benchmark index. It has an OCF of 0.82 per cent.

 

Fundsmith Equity

The analyst’s third pick requires little introduction. FE Alpha Manager Terry Smith’s Fundsmith Equity is a favourite among investors.


It has returned 202.16 per cent since launch in 2010 compared with a 114.48 per cent gain for its MSCI World benchmark and 79.38 per cent for the average peer from the IA Global sector.

Performance of fund vs sector & benchmark since launch

 

Source: FE Analytics

“It can carry the mantra of high conviction, highly concentrated and with a long long-term ‘buy and hold’ strategy; unlike many others which aspire to this investment philosophy,” said Admans.

“Investors should appreciate that the portfolio is more defined by the companies it will not invest in, rather than those it does.

He added: “Preference is for defensive companies who are resilient to change, specifically technological innovation and who have existing advantages that are difficult to replicate.

“Criteria for inclusion define companies which that have a high certainty of growth, resulting from reinvestment of cash flows and which do not require significant leverage to generate returns.”

The five crown-rated fund has an OCF of 1.08 per cent.

 

Liontrust UK Smaller Companies

The Liontrust UK Smaller Companies fund is overseen by FE Alpha Managers Anthony Cross and Julian Fosh, along with Victoria Stevens and Matthew Tonge.

The five crown-rated £598.1m fund aims to provide long-term capital growth by investing in UK smaller companies with a high degree of intellectual capital and employee motivation through equity ownership.

Admans says the fund insists on investing in companies which have a minimum director ownership of 3 per cent.


He added: “With an investment process driven by what the managers term the ‘Economic Advantage’ process, the Liontrust UK Smaller Companies fund seeks to identify prospective investments, having undertaken a rigorous appraisal against a number of intangible criteria.”

Performance of fund vs sector & benchmark over 3yrs

 
Source: FE Analytics

Over three years the fund has generated a return of 43.41 per cent compared with a gain of 25.21 per cent for the average IA UK Smaller Companies sector fund.

The fund has an OCF of 1.38 per cent.

 

Man GLG Continental European Growth

The fifth pick has a European focus and should provide diversification away from the UK, says Admans.

The five crown-rated Man GLG Continental European Growth fund has been managed by Rory Powe since 2014 and aims to provide above average long-term capital growth.

Admans said: “Fund manager Rory Powe looks for companies with strong European growth companies that fall into two camps, which he refers to as ‘established leaders’ and ‘emerging winners’.

“He takes a bottom-up approach to selecting companies for his fund, which means he is looking for businesses that have recurring revenues underpinned by pricing power, high gross margins, robust cash flow, a strong balance sheet and cash returns.”

The fund has returned 69.76 per cent since Powe took over the fund in 2010 compared with a 28.30 per cent gain for the benchmark FTSE Europe ex UK index. It has an OCF of 0.90 per cent

 

Polar Capital Global Insurance

The analyst’s final fund pick is another specialist strategy, but also highly regarded by advisers. Polar Capital’s Global Insurance invests in companies operating in the international insurance industry.

The five crown rated fund has been managed by Nick Martin since 2010 and aims to provide an attractive total return irrespective of broader economic and financial market conditions.

Admans said: “In a time of market volatility, many investors will be reassured by the stability this industry potentially offers, although they should appreciate the increased level of risk associated with focusing on just the one sector.

“Those seeking an opportunity to invest in the global insurance market should look to this fund for medium to long long-term rewards.”

The fund has generated a 173.84 per cent return since Martin took charge of the fund compared with 147.18 per cent for its benchmark, the MSCI World Insurance index.

It has an annual fee of 1.25 per cent and a performance fee of 10 per cent for outperformance of the benchmark.


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

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