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Advisers’ favourite funds in the sectors grabbing their attention

Following on from a recent article on the sectors that professionals are paying more attention to, FE Trustnet finds out which funds they have been researching the most.

Gary Jackson

By Gary Jackson, Editor, FE Trustnet
Friday June 02, 2017

The professional investors using FE Analytics have been spending more of their time researching sectors such as IA Volatility Managed and IA UK Equity Income, an FE Trustnet article revealed this week, but which individual funds have they been looking at the most?

When researching products in the Investment Association universe, the IA UK All Companies sector is a clear favourite. Even though its research share has fallen from the levels seen in 2016, it still accounted for 11.81 per cent of Investment Association research activity in the first five months of 2017.

Research share change from 2016 to 2017's first five months

 

Source: FE Analytics Market Intel Tool

But as the chart above makes clear, it’s the IA Volatility Managed, IA North America, IA Global Equity Income, IA UK Equity Income and IA Technology & Telecoms sectors that have seen more research activity over 2017 so far, as professional investors look at risk-targeted solutions, exposure away from the UK economy and more cyclical areas like global technology.

Over the following pages, we look at these five peer groups in more detail to find out which are the most popular members with FE Analytics users.


 

IA Volatility Managed

The IA Volatility Managed sector is the one that witnessed the biggest jump in research activity between 2016 and the opening months of this year – down to the fact that it only came into existence in early 2017.

 

Source: FE Analytics Market Intel Tool

As the above table shows, the Standard Life Investments MyFolio suite of funds dominates the list of professional investors’ most researched funds in this peer group and accounts for six of the 10 most popular funds.

Managed by Standard Life Investments head of fund of funds Bambos Hambi, the MyFolio line-up comprises 25 offerings split between five ranges. All have been persistent favourites with investment advisers and moved into the IA Volatility Managed sector upon its launch.

The most researched fund in the sector is Standard Life Investments MyFolio Managed III. This £3bn fund mainly invests in other Standard Life Investments products with SLI Global Absolute Return Strategies, SLI North American Trust and SLI UK Real Estate; it does also own funds from other firms such as Vanguard US Equity Index, AXA Sterling Credit Short Duration Bond and BlackRock Global Real Estate.

Performance of fund vs risk-targeted sector over 5yrs

 

Source: FE Analytics

As the above chart shows, the fund has outperformed its average peer in FE’s RTMA Risk Band 2 over the past five years. We used this bespoke risk-targeted sector for comparison rather than IA Volatility Managed as the wide-ranging mandates of funds in the IA peer group means comparisons on a sector level are not appropriate.


 

IA North America

This was the sector witnessing the second largest positive shift in research activity, despite its reputation as being a generally weak area for active management.

 

Source: FE Analytics Market Intel Tool

But there are a number of active funds that have built up strong reputations in the space and many are represented on the above list of the sector’s most heavily researched members.

Schroder US Mid Cap, which is headed up by FE Alpha Manager Jenny Jones, is head of both its average peer and its Russell 2500 benchmark over three-, five- and 10-year periods. This has earned it five FE Crowns for superior performance in terms of stock picking, consistency and risk control over recent years.

The FE Invest team, which has the fund on its approved list, said: “This fund benefits from Schroders’ extensive network of global analysts and background infrastructure supporting the dedicated US equity team. Jenny Jones has built a robust process throughout her extensive US equity investing career, where every team member is given responsibility for the portfolio’s performance.”

Performance of fund vs sector and index over 5yrs

 

Source: FE Analytics

Of the 10 funds on the above list, six are currently in the IA North America sector’s top quartile over five years – Old Mutual North American Equity, Fidelity American Special Situations, Schroder US Mid Cap, HSBC American Index, Threadneedle American and L&G US Index Trust – with returns ranging from 138.95 per cent to 173.61 per cent.


 

IA Global Equity Income

Following the EU referendum result, many professional investors trimmed allocations to the UK and started to lift weightings to investments outside of home shores. This is reflected by increased interest in the IA Global Equity Income sector, with the below funds being the most popular members of the peer group.

 

Source: FE Analytics Market Intel Tool

The £5.5bn Newton Global Income fund is managed by Nick Clay and uses Newton’s global thematic approach, which attempts to identify how long-term structural changes can impact the global economy, to guide its investment decisions.

Its current stance is relatively cautious, with its main overweights being to the consumer goods, healthcare, utilities, consumer services and technology sector; it is underweight areas like financials, industrials and basic materials. Top holdings include Microsoft, Reynolds American and Cisco Systems.

Square Mile, which gives the fund an ‘A’ rating, noted: “As a result of the process, the fund can take meaningful positions away from its FTSE World benchmark. This can result in the portfolio, at times, looking markedly different from this index. As a consequence, performance over shorter time frames could also be variable but we would expect this strategy to deliver attractive returns over the longer term.”

Performance of fund vs sector and index over 5yrs

 

Source: FE Analytics

Of the 10 funds on the list, Artemis Global Income has been the best performer over five years with a 134.42 per cent total return, while it is joined in the sector’s top quartile by Fidelity Global Dividend, Newton Global Income, Schroder Global Equity Income and Invesco Perpetual Global Equity Income.


 

IA UK Equity Income

While the IA UK All Companies sector has seen a decline in professional investor interest over 2017 to date, the IA UK Equity Income peer group saw its research share increase.

 

Source: FE Analytics Market Intel Tool

There should be little surprise that the list of the most heavily researched funds is topped by CF Woodford Equity Income as it has been a consistent favourite with professional and private investors since its launch in June 2014.

Over this time it has made a 37.83 per cent total return – which is the highest in the sector. It is managed along the same lines as the successful equity income products that the manager ran during his years at Invesco Perpetual and Woodford has a more positive view of the UK economy than many, despite is generally defensive approach.

Performance of fund vs sector and index since launch

 

Source: FE Analytics

It’s not the only strong performer in the IA UK Equity Income sector, however. Unicorn UK Income, Royal London UK Equity Income, Standard Life Investments UK Equity Income Unconstrained, JOHCM UK Equity Income and Threadneedle UK Equity Income are in the top quartile on a five-year view.

Meanwhile, Rathbone Income, Threadneedle UK Equity Income and Trojan Income hold five FE Crowns while Rathbone Income, CF Woodford Equity Income, Schroder Income Maximiser, Trojan Income and Unicorn UK Income have FE Alpha Managers working on their portfolios.


 

IA Technology & Telecoms

Finally, the sector to witness the fifth biggest jump in professional investor interest this year is IA Technology & Telecoms. There are only 16 funds in this rather specialist peer group but just seven were researched more than 100 times over the five months we examined.

 

Source: FE Analytics Market Intel Tool

Technology stocks are a firm favourite with investors, given the presence of strong brands such as Facebook, Apple and Google parent Alphabet in the space. The latest edition of the Bank of America Merrill Lynch Global Fund Manager Survey found that 33 per cent of asset allocators are overweight technology, which is 0.5 standard deviations above the long-term average.

The most researched member of the sector is AXA Framlington Global Technology, which is headed up by Jeremy Gleeson and was researched more than 4,000 times. The £388.8m fund is the best performer in the sector over 10 years thanks to a 315.42 per cent total return; this compares with 224.91 per cent from its average peer and 258.34 per cent from its MSCI World Information Technology benchmark.

Gleeson is bullish on the earnings growth offered by technology companies, pointing out in his latest update: “Technology companies have started reporting results for Q1 2017 and providing update outlooks for the remainder of 2017. So far, these have been encouraging especially when compared with the broader equity market.

“Of the companies that have reported Q1 results so far within the MSCI World index (representing the broader market), 68 per cent reported better-than-forecasted revenues and 72 per cent reported a positive upside to predicted earnings. For the technology component of the same index, the figures are 76 per cent and 75 per cent respectively. For the fund, these figures are 75 per cent and 87 per cent respectively.”

Performance of fund vs sector and index over 10yrs

 

Source: FE Analytics


This article is for professional investors only. You will be redirected to the News & Research homepage in seconds. If you are having problems getting to the page, please click here
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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