UBS Currency Allocation Return Strategy, Natixis H2O Multireturns and VinaCapital Vietnam Opportunity are some funds for investors to consider in 2019, according to Skerritts Wealth Management’s Andrew Merricks.
Merricks, head of investments at the wealth management firm, said the following funds should offer some opportunities as well as diversification through a year that promises to provide as wide a range of geopolitical and economic threats that he can remember during 30 years in the investment industry.
Given the current uncertainty surrounding Brexit, Merricks said that “no sensible investment decisions can be made against such an uncertain backdrop”, a reason why none of the below fund choices attempt to deal with the Brexit situation.
UBS Currency Allocation Return Strategy
The first fund highlighted by Merricks is the £77.3m UBS Currency Allocation Return Strategy, overseen by Jonathan Davies and Stephen Friel.
According to the head of investments, 2019 will see either the escalation or the receding of the threat of a full-blown trade war between the US and China.
As such, if the relations between the two economic superpowers sour, he noted currencies could hold the key to “a successful year end investment return”.
“We are not currency experts ourselves, so we have sought to find fund managers that claim to be, and this is why I put forward the UBS Currency Allocation Return Strategy fund and the Natixis H20 MultiReturns fund as two of the funds that we will be backing as non-correlated opportunities to profit from currency volatility across the globe next year,” he noted.
Performance of fund since launch
Source: FE Analytics
UBS Currency Allocation Return Strategy invests across both developed and emerging market currencies and seeks to generate a return of cash of +10 per cent per annum, at a long-term expected volatility of around 20 per cent, over a full market cycle (from three to five years).
“It is unusual that all this fund does is investing across emerging and developed markets currencies unlike some other funds that play currencies as well as other strategies within their remit,” said Merricks.
“The managers will make decisions regarding relative merits of the major currencies as well as those such as the Mexican peso, New Zealand dollar and Swedish krona for example.”
The fund currently holds 60 per cent of its portfolio in Japanese yen, 40 per cent in Mexican peso, 20 per cent in euro, 20 per cent in Norwegian krone and 20 per cent in Swedish krona.
It is down 3.35 year-to-date and has an ongoing charges figure (OCF) of 1.00 per cent.
Natixis H2O MultiReturns
Jeremy Touboul and Vincent Chailley’s Natixis H2O MultiReturns is next on Merrick’s list of funds to consider in 2019.
The £369.8m absolute return strategy invests across fixed-income, equity and currency markets on a global basis and combines the search for relative value with the pursuit of diversification across asset classes, markets, strategies, and investment horizons.
According to Merricks, this fund should not be seen as a low risk absolute return option.
“Since we’ve been using it, it has experienced bouts of high volatility, but that is not why we use it,” he explained. “It offers a diversified approach to fast-moving investment backdrops and is often non-correlated to equity movements.”
He noted that one of the Natixis H2O MultiReturns’ strengths is that the fund “is not the market”.
Since launch in 2013, the fund has delivered a 64.65 per cent total return. It has an OCF of 1.0 per cent.
VinaCapital Vietnam Opportunity
The five FE Crown-rated, closed-ended VinaCapital Vietnam Opportunity, overseen by Dom Lam, is the Skerritt’s investment head’s next fund pick.
“This is obviously not a low-risk choice, but as a potentially unnoticed beneficiary of an escalating trade war, Vietnam has come on to our radar,” he said. “Vietnamese companies are emerging as winners in the trade war between the US and China, according to a survey of US and Chinese businesses.”
Performance of fund vs sector over 5yrs
Source: FE Analytics
Merricks added: “Companies from both countries that took part in the survey, published by the American Chamber of Commerce in south China, said that as a result of the trade conflict they have been losing market share, especially to companies from Vietnam.”
According to Merricks, this trust is also a unique way to play the Vietnamese market.
“The VinaCapital Vietnam Opportunity fund is managed by a local based asset management company, but the fund is listed on the main London Stock Exchange and around £660m in size,” he said. “It is a mixture of listed companies and private equity, where VinaCapital leverage on their large domestic presence to access strong businesses, often in the pre-IPO phase.”
As a result of this private equity style approach VinaCapital Vietnam Opportunity often does not look like the index.
While the average trust in the IT Country Specialists Asia Pacific sector has delivered a 107.61 per cent total return, VinaCapital Vietnam Opportunity is up 159.61 per cent over five years.
Data from the Association of Investment Companies shows the trust is trading at a 16.1 per cent discount to its NAV, is not geared and has an ongoing charge of 1.77 per cent.
L&G Cyber Security UCITS ETF and iShares Healthcare Innovation UCITS ETF
Two exchange-traded funds (ETFs) are Andrew Merrick’s final choices: L&G Cyber Security UCITS ETF and iShares Healthcare Innovation UCITS ETF.
The $534.2m L&G Cyber Security UCITS ETF aims to track the performance of the ISE Cyber Security UCITS index, which has 43 constituents.
“This is a long-term favourite of mine,” said Skerritts’ Merricks. “Quite simply, cybersecurity is a global threat to governments and citizens alike, and I find it very hard to think that a lot of resources will not be poured into the ongoing development of cybersecurity in all forms.
“By investing in the index we are assured of backing the winners in the sector as they come to dominate,” Merricks said. “It’s a modern day good guys versus the bad guys and we’re backing the good guys to win.”
L&G Cyber Security UCITS ETF is up 64.43 per cent over five years. It has an ongoing charges figure (OCF) of 0.75 per cent.
Performance of fund vs sector over 5yrs
Source: FE Analytics
The $418.6m iShares Healthcare Innovation UCITS ETF seeks to track the performance of an index composed of developed and emerging market companies which are generating significant revenues from specific sectors focused on pushing the boundaries in medical treatment and technology.
As such, as Merricks noted, by buying this ETF investors are not simply investing in drug research and development as in a biotech fund but in the many different ways in which healthcare technology is driving equipment and other medical advances too.
“I like this fund because it is a step further than simply investing in biotechnology or healthcare, each of which have suffered quite sharp setbacks in the last two or three years,” the Skerritts head of investments said.
“15 per cent of the companies in the index are in South Korea, which is one of our favoured Asian markets for next year as well,” he added.
Over five years, iShares Healthcare Innovation UCITS ETF has delivered a 32.12 per cent total return compared with a gain of 26.63 per cent by the Global ETF Equity Pharma Health & Biotech sector.
It has an OCF of 0.40 per cent.