Cybersecurity, ageing populations and funds that actively manage currency exposures are among the long-term themes investors can consider without losing sleep over valuations, according to Skerritts Wealth Management’s Andrew Merricks. 
As markets have shrugged off many of the geopolitical headwinds and continued to move higher, investors have become increasingly concerned over valuations and are struggling to find obvious ‘buy’ opportunities.
However, as Skerritts’ head of investment Andrew Merricks highlighted, opting for funds investing thematically can be a good bet for those who don’t want to worry about high valuations.
“If you can identify themes that are going to be with us for the coming years, then valuations are less of a concern,” Merricks explained.
As part of an ongoing series, Merricks (pictured) outlines four funds he believes investors can hold and sleep peacefully given the macroeconomic backdrop and the lack of obvious ‘buy opportunities’.
L&G ISE Cyber Security GO UCITS ETF
Skerritt’s first choice is the $534.2m exchange-traded fund (ETF), L&G ISE Cyber Security GO UCITS ETF, which fits into the IT security theme.
“Cybersecurity issues are not going away any time soon, so this ETF seems to have legs in it yet,” Merricks noted. “I like the passive approach in this case as it is quite a young theme and is likely to be dominated by a handful of players in the years to come.”
Whereas a more active approach may lead investors to buy the wrong stocks, by buying a relatively immature index they are guaranteed to capture the winners in the sector, Merricks noted.
While acknowledging that geographical allocation is less important for thematic investors, Merricks said this ETF has around 11 per cent invested in Israeli stocks due to the nature of the theme, an area that would be easy to miss if just concentrating on developed markets.
Performance of fund vs sector since launch
Source: FE Analytics
Since launch in 2015, the L&G ISE Cyber Security GO UCITS ETF has generated a total return of 22.79 per cent, while the average peer in the broad Glbl ETF Equity – Tech Media & Telecom sector is up by 73.01 per cent. The fund has an ongoing charges figure (OCF) of 0.75 per cent.
iShares Ageing Population ETF
The rising median age in the world’s population due to declining fertility rates and higher life expectancies is another long-term theme to bear in mind given the current investment backdrop, according to Merricks.
“The ageing population is again a theme that is not going away any time soon,” he explained.
Indeed, data from Age International showed that not only has life expectancy at birth increased by almost 20 years over the last century but that by 2050 there will be more than 2 billion people aged 60 or over.
As such, Merricks’ fund pick is the $231.8m iShares Ageing Population ETF, a passive fund made up of global financial, healthcare and consumer discretionary stocks, what he describes as a “buy & hold proposition”.
Top holdings include medical research and drug development company Sarepta Therapeutics and Nordic Nanovector, a biopharmaceutical company dedicated to extending and improving the lives of patients with haematological cancer.
Since launch in 2016, iShares Ageing Population ETF has delivered a 24.85 per cent total return compared with a gain of 25.74 per cent for the Gbl ETF Equity – International sector. It has an OCF of 0.40 per cent.
H2O MultiReturns
Next on Merricks’ list is the £379m Natixis H2O MultiReturns, a fund he said that should not be confused for an absolute return strategy.
“It is not and absolute return fund and can be quite volatile,” he said. “However, if you can weather the occasional bout of volatility, this fund is one of the few on the market that actively allocates to currencies.”
Performance of fund vs sector since launch
Source: FE Analytics
Given that trade disputes could continue to flare up, Merricks said currencies are an asset class that can greatly help in absorbing equity market downturns.
“It is a very good diversifier within a balanced portfolio,” he noted.
The fund aims to outperform one-month sterlin LIBOR rate by 4 per cent per annum over three years, less the ongoing charges ratio, and can invest across fixed income, equity and currency markets on a global basis.
H2O MultiReturns is overseen by Jeremy Touboul and Vincent Chailley, who have a four-pillar process based on macro, valuation, capital flows and technical analysis. They then look at currencies, governments, credit and equities.
According to Rayner Spencer Mills Research this fund is in effect a “global macro hedge fund within a Ucits wrapper” and is quite different from most other retail offerings within the IA Targeted Absolute Return sector.
“Success for the fund will depend on correct market calls as there is no natural return from most of the investment instruments used,” they added.
Since launch in 2013, H2O MultiReturns has delivered a 61.66 per cent total return compared with an 11.49 per cent gain for the average fund in the IA Targeted Absolute Return sector. It has an OCF of 1 per cent.
SDL Buffettology Fund
Merricks’ final pick is the five FE Crown-rated, £404.9m CFP SDL UK Buffettology fund run by FE Alpha Manager Keith Ashworth-Lord.
“I’ve been a supporter of this fund virtually from launch and have been rewarded well for being so,” he explained. “I don’t like investing in the UK market while Brexit continues to confuse. Hard, soft, delayed, no Brexit… it’s anyone’s guess what the end result will be.”
He added: “Keith Ashworth-Lord doesn’t much care on the outcome. He concentrates only on the principles laid down by Warren Buffett and his team – hence the licensed name of the fund – and cares only about the companies in which he invests. It is a true, multi-cap fund.”
The fund’s top holding representing 6.30 per cent of the portfolio is war games miniature manufacturer Games Workshop. It also holds medical device provider BioVentrix and Liontrust Asset Management among its top-10 holdings.
Performance of fund vs sector since launch
Source: FE Analytics
Since launch in 2011, CFP SDL UK Buffettology has delivered a total return of 218.40 per cent compared with a gain of 84.25 per cent for the average fund in the IA UK All Companies sector. It has an OCF of 1.28 per cent.