Matthews Asia China Small Companies, Man GLG Japan Core Alpha and M&G Recovery are examples of funds for investors to consider going into 2019, according to Shore Financial Planning’s Ben Yearsley.
Yearsley, who is the director at the advice firm, said 2019 will be determined by three key things: US interest rates, US-China relations and Brexit, with the actions of the Fed being the issue of most importance to global markets.
He noted another thing to watch out for is currency movements, as there is potential for some big currency swings as markets digest ongoing news flow around Brexit, rates and China.
From a global equities perspective, Yearsley noted Asia, Japan and emerging markets remain attractive given low valuations and the outlook for growth in these areas.
“The US will continue to see good earnings growth, but probably half as much growth in 2019 as occurred in 2018,” Yearsley said.
“Europe looks like stagnating, especially if there is a messy Brexit. As ever it is Asia, emerging markets and Japan that look interesting, both from a price perspective and a growth outlook.”
Below, Yearsley highlights five funds that he thinks look interesting as we move into the new year.
Matthews Asia China Small Companies
Yearsley’s first fund pick is what he calls a “high risk choice” for “brave investors”: the five FE Crown-rated Matthews Asia China Small Companies fund.
The $72.7m fund has been run by Tiffany Hsiao alongside deputy manager Kenichi Amaki since 2015 and aims to deliver long-term capital growth as well as outperformance of the MSCI China Small Cap index over the long run.
To do so, the managers consider the areas that may impact the companies’ ability to perform including corporate governance, the stock’s liquidity or the companies’ level of innovation.
“China has been beaten up this year due to the trade war and dollar squeeze. Market levels are back down at pre-financial crisis levels,” said Yearsley.
“For brave investors this creates a long-term buying opportunity. This fund is high risk and will be volatile. Buy it and forget about it and if there is a good outcome to the US-China trade talks this fund will fly.”
Performance of fund under Hsiao
Source: FE Analytics
Since Hsiao took over in 2015, Matthews Asia China Small Companies has delivered a 28.97 per cent total return compared with a 21.11 per cent gain for the average fund in the IA China/Greater China sector and an 18.01 per cent loss for the MSCI China Small Cap index.
It has an ongoing charges figure (OCF) of 2.25 per cent.
Man GLG Japan Core Alpha
A fund investing in Japan is next on Yearsley’s list, the £2.2bn Man GLG Japan Core Alpha fund overseen by Neil Edwards, Stephen Harker and Jeff Atherton.
“Japan remains a favourite overseas market and Man GLG Japan Core Alpha is an excellent way to play it,” noted Yearsley.
“It is an unashamed value play; it’s large-cap and follows a well-defined process looking primarily at balance sheets and cash flow.
“Large-cap value looks cheap in Japan and companies are in good financial shape; I’ve been a fan of Japan for many years and still like the cut of GLG’s jib.”
Man GLG Japan Core Alpha is overweight bank and transportation equipment. Its largest positions are in Japan Post Holdings, Honda Motors and Nippon Steel & Sumitomo Metal.
Over five years, the fund has delivered a 73.21 per cent total return compared with a gain of 64.06 per cent for the average fund in the IA Japan sector and a 70.99 per cent rise for the TSE Topix index.
It has an ongoing charges figure (OCF) of 0.90 per cent.
Artemis US Extended Alpha
The next strategy for investors to consider as we go into 2019 is FE Alpha Manager Stephen Moore’s Artemis US Extended Alpha fund, which Yearsley believes is an interesting vehicle to access the US market at this stage of the cycle.
“What I like about this fund is it’s a 130/30 fund, in other words: it has the ability to profit from falling share prices as well as rising ones,” explained Yearsley.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund is also rated by analysts at Rayner Spencer Mills, who noted the investment approach used by the Artemis team looking at both upside and downside in stocks naturally lends itself to the extended alpha approach.
“The fund has delivered returns with better consistency than many other traditional long-only funds in the sector and is worthy of a rating due both to the strength of the lead manager, the overall team at Artemis and a robust and proven investment process,” they said.
While the S&P 500 and the IA North America sector have delivered respective gains of 82.86 per cent and 71.08 per cent, Artemis US Extended Alpha is up 105.73 per cent since launch in 2014.
M&G Recovery
A fund investing in out-of-favour UK companies is Yearsley’s next choice, the £2.6bn M&G Recovery fund headed up by Tom Dobell since 2000.
“The UK has been beaten up mainly due to Brexit negotiations and the threat of a Corbyn government, which has led to many segments of the market looking cheap,” said Shore Financial Planning’s director.
“This is one of a number of funds that you could buy but I’ve always liked the approach of Tom Dobell in accessing cheap but interesting UK companies.”
As a result of Dobell’s approach, M&G Recovery has larger exposure to mid- and small-caps, with companies such as Oxford Biomedica, Tullow Oil and regenerative medicine company Mesoblast among its top 10 holdings.
Over five years, M&G Recovery has delivered a fourth-quartile 9.28 per cent gain compared with the FTSE All Share index and the IA UK All Companies sector respective gains of 30.89 and 28.14 per cent. It is also bottom-quartile over 10 years, which reflects on the heavy underperformance of value style over the past decade.
It has an OCF of 0.82 per cent.
Architas Diversified Real Assets
Finally, for those of a more nervous disposition Yearsley suggested that offerings such as the £237.3m Architas Diversified Real Assets fund could be worth a look.
The fund looks to deliver cash plus 4 per cent by investing, as the name suggests, in a portfolio of investments underpinned by real assets that have a low correlation to bonds and equities.
“Architas Diversified Real Assets has a weird and wonderful portfolio of aircraft leasing, social housing and catastrophe reinsurance to name a few,” said Yearsley.
The fund largest holdings include PFS Twentyfour Monument Bond Fund, Royal London Sterling Extra Yield Bond Fund, AXA World Funds Global Flexible Property and Insight LIBOR Plus Fund.
Performance of fund since launch
Source: FE Analytics
Since launch in 2014, Architas Diversified Real Assets is up 15.98 per cent. It has an OCF of 1.15 per cent.