Funds with a focus on Asian, European and emerging market equities could be presenting some attractive opportunities following some underperformance in recent years, according to Schroders’ Marcus Brookes. 
With many investors looking to add to funds ahead of the new tax year, the head of multi-manager at Schroders highlights a trio of equity funds he is backing for his portfolios.
Brookes has established a strong long-term track record on his multi-manager range. The flagship Schroder MM Diversity, for example, has outperformed it average IA Mixed Investment 20%-60% Shares peer by 15 percentage points over the past decade with a 64.12 per cent total return.
However, the fund has fallen into the fourth quartile over more recent time frames owing to cautious positioning and its exposure to the value style, which has lagged growth. But with previously unloved areas of the market starting to outperform we look at Brookes’ equity picks across the globe.
Artemis Global Emerging Markets
Emerging market equities have underperformed the developed world for a number of years, although they experienced somewhat of a resurgence in 2016, and the Schroders multi-manager team had been avoiding them.
Performance of fund vs sector and index since launch
Source: FE Analytics
Brookes said: “We have chosen to dip our toes back in the water as we think the region is continuing to become more attractive.
“One of the funds we like in this area is the Artemis offering, managed by Peter Saacke and Raheel Altaf, using the firm’s ‘SmartGARP’ approach. The fund is not too big and cumbersome, which gives it added flexibility to invest across the emerging markets spectrum, and it has a strong team behind it. We think it is a good option for playing the improvement in emerging market fundamentals.”
As the chart above shows, the £63.8m Artemis Global Emerging Markets fund has outperformed its average peer and MSCI Emerging Markets benchmark since launch with a 20.83 per cent total return. It has done so with less volatility, a lower maximum loss and a higher maximum gain.
The fund’s principal exposures are overweight positions in Russia and Thailand and underweights in India and Malaysia, with a tilt towards more cyclical sectors. Its largest holdings are Samsung, Taiwan Semiconductor Manufacturing Company and OAO Lukoil.
Artemis Global Emerging Markets has a clean ongoing charges figure (OCF) of 1 per cent and yields 1.88 per cent.
Brookes adds that many investors have been worried about China’s ability to maintain its growth – the country recently lowered its GDP target for 2017 to 6.5 per cent– which had led many to cut their exposure to the wider Asian region.
“While we share some of these worries longer term, for now we feel that it might be prudent to add back to positions. Our chosen fund for this purpose is the Jonathan Pines-managed Hermes Asia ex Japan Equity fund,” the multi-manager said.
“We like this fund as the manager has a strong value-biased philosophy, something that we feel could lead the market for a while yet. Furthermore, the fund has already enjoyed some success but careful capacity management means we remain hopeful that it will not get too big, allowing it to continue its impressive performance.”
Performance of fund vs sector and index since launch
Source: FE Analytics
Since its launch in December 2012, the $2.6bn fund has established a strong track record with its 125.01 per cent total return being the highest in IA Asia Pacific ex Japan sector and around 75 percentage points above the index’s.
Pines has a value approach to investing and seeks out companies across the quality and market-cap spectrums where he believes the market is not recognising their potential. Current holdings of the five FE Crown-rated fund include Baidu, Samsung Electronics and Alibaba.
Hermes Asia ex Japan Equity has an 0.85 per cent OCF.
Invesco Perpetual European Equity
European equities are another area of the market that have been relatively unloved by investors in recent years, following the travails of the eurozone sovereign debt crisis, the Brexit result and a number of looming political elections.
“Europe is an area that seems to have been in the eye of the financial storm since the crisis began in 2008. We have begun to see a modest pickup in the economy and profits forecasts; while politics may be dominating investors views of the continent, perhaps it is still worth adding to this area,” Brookes said.
“Our preferred fund here is the Invesco Perpetual European Equity fund, managed by Jeff Taylor and his team. The manager has selected a portfolio of shares that target the cheaper areas of Europe, including a reasonable exposure to European financials, an area that we believe could find favour once the political distractions are out of the way.”
Performance of fund vs sector under Taylor
Source: FE Analytics
This £2bn fund has been headed up by Taylor since January 2001, over which time it has made a top-quartile total return of 193.99 per cent.
The manager’s approach focuses on superior quality companies that are trading at attractive valuations, paying close attention to factors such as a business’ finances, its management and the longer-term drivers of profits.
Top holdings include Novartis, ING and Carrefour, with France being the largest geographic exposure at 30.25 per cent followed by France (13.02 per cent) and Spain (10.86 per cent).
Invesco Perpetual European Equity has a 0.93 per cent clean OCF and is yielding 2.07 per cent.