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Why the Woodford launch isn’t the only young fund you should look at

13 April 2017

Following yesterday’s launch close of Neil Woodford’s new Income Focus fund, FE Trustnet looks at other young equity funds that are run by experienced FE Alpha managers with strong long-term track records.

By Lauren Mason,

Senior reporter, FE Trustnet

Investors shouldn’t feel as though they have missed the boat following yesterday’s launch close of Woodford’s (pictured) Income Focus fund, if the aim of the game is to buy into young funds with highly-rated managers at the helm.

Data from FE Analytics shows that CRUX European, Liontrust UK Micro Cap and Schroder Global Recovery are just some of the small, young funds that have short track records but are run by managers with stellar multi-year track records.

When looking for funds to add to portfolios, many investors will look at the medium- to long-term track record of the vehicle in question to determine how well it has held up during varying market conditions.

While the caveat that ‘past performance is no guide to future returns’ is applicable, this can offer investors some guidance as to whether the fund does well at protecting capital during falling markets or whether it is structured to outperform its rallying peers during bull markets.

There is equally every likelihood that a so-called ‘dog fund’ could achieve a strong return over three years or less as a result of specific market conditions, which could mask the manager’s ability to select stocks or determine market themes.

As such, investing in a fund that doesn’t yet have a three-year track record can be a difficult pill to swallow.

Woodford’s Income Focus fund, which was launched less than one month ago, may be considered an exception to this rule. Given the star manager’s strong long-term track record which has been built over decades, there are likely to be many investors that are disappointed to have missed the fund’s fixed price launch period, which closed at midday yesterday.

However, there are a number of other new funds on the market that adopt tried-and-tested methods devised by star managers over lengthy periods of time.

Including Woodford’s Equity Income and Income Focus funds, there are currently 16 equity funds within the Investment Association universe that have a track record of three years or less and have an FE Alpha Manager at the helm. Out of these, nine are run by FE Alpha Managers with performance track records spanning more than a decade.

 

Source: FE Analytics

Three of the funds are managed by Woodford, who joined Invesco Perpetual in 1988. Aside from the two aforementioned funds, he runs Omnis Income & Growth, which was launched in February last year and resides in the IA Unclassified sector. As to be expected from Woodford, the £183m fund has a bias towards high-quality growth stocks and pharmaceuticals, with its largest holdings including the likes of AstraZeneca, GlaxoSmithKline and Imperial Tobacco.

Another FE Alpha Manager dominating the list is Martin Lau, who co-manages the recently-launched First State Asia All Cap and Asia Focus funds alongside fellow FE Alpha Manager Richard Jones. He also co-manages Japan Focus alongside Sophia Li.


Since he joined the First State Stewart Asia (FSSA) team – an independent investment management team within First State Investments – in 2002, he has returned an average of 814.97 per cent to investors, compared to his peer group composite’s return of 455.29 per cent over the same period.

Performance of Lau vs peer group composite since April 2002

 

Source: FE Analytics

First State Asia All-Cap and First State Asia Focus are similarly structured although, as its name suggests, the latter has a slightly more concentrated portfolio of 61 holdings while the former holds 69 names.

Lau and the FSSA team adopt an absolute return approach to investing, focusing their attention on high-quality growth companies with strong franchises, purchasing power, competitive advantages and healthy balance sheets.

They place an emphasis on protecting on the downside as well as generating growth. Largest holdings across both funds include Taiwan Semiconductor Manufacturing, Australian biotech firm CSL Limited and Hong Kong-based conglomerate CK Hutchison Holdings.

First State Japan Focus also uses FSSA’s investment philosophy but applies it to the Japanese market and will only invest in companies that are at least $1bn in size. It has a highly-concentrated portfolio of 36 stocks.

Another relatively new fund on the list is CRUX European, which was launched in November 2015 by FE Alpha Manager Richard Pease following his move from Henderson. He has co-managed the fund alongside James Milne since launch, who also joined the firm from Henderson after working there for six years.

Since the turn of the millennium – which is as far back as our data stretches – Pease has tripled the performance of his peer group composite with an average return of 434.91 per cent.

The manager adopts a bottom-up process when it comes to stock selection and looks for companies with a competitive edge versus their peers that are cash generative.

The £29.9m CRUX European fund differs slightly from the five crown-rated CRUX European Special Situations fund – which was initially launched by Pease at Henderson in 2009 – as it has a more concentrated portfolio of 45 stocks and will also invest in companies that aren’t turn-around stories.

Its largest holdings include Cypriot real estate holding company Aroundtown, Nordic insurance company Sampo and Denmark-based facilities support services company ISS.

FE Alpha Manager duo Anthony Cross and Julian Fosh’s Liontrust UK Micro Cap fund is also on the list, which they head up alongside Matthew Tonge and Victoria Stevens.

Launched in March last year, the £16m fund has 55 holdings and adopts Fosh and Cross’s tried-and-tested Economic Advantage stock selection process, which aims to find companies that exhibit traits the managers deem hard to replicate. This will generally lead them to buy into stocks that either have intellectual property, strong distribution channels or significant recurring business.


Their ‘best idea’ Special Situations funds – which also use this process – has returned 208.51 per cent over 10 years, more than doubling the returns of its FTSE All Share benchmark and average peer in the IA UK All Companies sector over this timeframe.

Performance of fund vs sector and benchmark over 10yrs

 

Source: FE Analytics

The final young equity fund that has been managed by at least one FE Alpha Manager with a 10-year track record is Schroder Global Recovery.

The £103m fund was launched by star managers Kevin Murphy and Nick Kirrage in October last year, following the success of their UK-focused £976m Schroder Recovery fund.

On average, the pair have outperformed their peer group composite by 62.23 percentage points since they started managing money at Schroders in 2006, with a return of 161.56 per cent.

This is no mean feat, given that recovery and value investment strategies have been widely out-of-favour for many of these years.

Kirrage and Murphy look for stocks that are undervalued relative to their long-term history but aren’t permanently impaired. For instance, they will opt for stocks that have structural or solvency problems which can be solved by a change in management team or overall approach.

The managers adopt a deep value approach to investing and are unafraid to hold particularly unloved stocks such as Royal Bank of Scotland, which resides in the top 10 list of individual holdings in both Schroder Recovery and Schroder Global Recovery.

Other recently-launched funds whose managers don’t have a 10-year track record but are worthy of note include F&C European Small Cap, Fidelity Asia Pacific Opportunities and GVQ Opportunities.

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