Home to a vast range of strategies, the £56.4bn IA Specialist sector can often go overlooked by investors who have little to benchmark its funds’ performance against peers.
The sector is home to numerous diverse strategies, including some that focus on German equities, others that invest in precious metal stocks and ones that hold global convertible bonds – just to name a few.
While some of those funds may be subject to the whims of the market they operate in given their specialist focus, there are some funds that have delivered positive total returns year after year.
In fact, there are four funds – AXA Framlington Health, Janus Henderson Secured Loans, Polar Capital Healthcare Opportunities and Principal GIF Preferred Securities – that have achieved the feat in each of the past 10 calendar years.
Source: FE Analytics
Two more – MFS Meridian Prudent Wealth and Polar Capital Global Insurance – have made positive returns in each of the past nine years.
Below, FE Trustnet considers in further detail the funds with a long-term track record of posting positive returns. Of course, it must be noted that past performance isn’t a guide to future returns.
AXA Framlington Health
The first of two healthcare-focused strategies on our list is the £507.1m AXA Framlington Health fund, managed Dani Saurymper.
Saurymper has run the fund since 2015, although it was launched in 1987 and was previously managed during the past decade by Mark Hargraves, Gemma Game and Deanne Donnigan.
Targeting long-term growth of capital, the manager takes a bottom-up fundamental approach to constructing a portfolio with a thematic overlay.
It seeks to benefit from long-term drivers such as demographic factors, scientific and medical advances, and emerging growth.
With an unconstrained investment approach, the fund manager invests across the broader global healthcare sector as well as companies that provide goods and services to the industry.
“Against an uncertain political backdrop, economic data – especially in the US – has been mostly positive and business fundamentals continue to be strong across multiple sectors,” noted Saurymper at the end of last year.
“In light of the high valuations in certain areas of healthcare, such as medtech and life science tools, we are relatively more constructive on managed care and the large-cap biotech companies where valuations remain compelling and pipeline catalysts are emerging.”
Performance of fund vs benchmark over decade
Source: FE Analytics
Over the 10 years to 31 December 2018 AXA Framlington Health has made a total return of 254.18 per cent against a 247.13 per cent gain for the MSCI World/Health Care benchmark. The fund carries an ongoing charges figure (OCF) of 0.82 per cent.
Janus Henderson Secured Loans
The second fund on our list is Janus Henderson Secured Loans, managed by David Milward since 2005.
Over 10 years, the £190.1m fund is up by 143 per cent. The Janus Henderson Secured Loans has a yield of 2.9 per cent and an OCF of 0.99 per cent, although it is not marketed at retail investors.
Principal GIF Preferred Securities
Next on our list is the five FE Crown-rated Principal GIF Securities fund, managed since launch in 2003 by Spectrum Asset Management’s L Phillip Jacoby and Mark Lieb.
The $3.8bn fund invests in a portfolio of mainly investment grade, US dollar-denominated preferred securities and debt securities.
Preferred securities behave as a fixed income investment but are most often junior to senior debt and are senior to common stock.
As such, the shares have a higher claim on assets and earnings than common stock owners and generally have a dividend that must be paid out before any others. Investors are usually attracted by the typically higher yields on offer, regular payouts and lower default rates.
The securities market is divided into a retail $25 par sector and an institutional $1,000 par capital securities, which US-based specialist asset manager Spectrum believes can create inefficiencies for it to benefit from.
“Spreads currently are at levels that we saw during the commodity implosion in early 2016 and subsequently during the Brexit vote in June of 2016,” the Spectrum managers wrote recently.
“Therefore, the relative value of subordination in the $1,000 par sector continues to be attractive. The rally in $25 par paper has left the sector 151 basis points richer relative to $1,000 par, and $25 par is once again rich relative to the $1,000 par sector.”
Performance of fund vs benchmark over decade
Source: FE Analytics
Over 10 years, the Principal GIF Securities fund has returned 195.68 per cent compared with an 80.86 per cent gain for the Bloomberg Barclays Global Aggregate – Corporate index, as the above chart shows.
The fund has an OCF of 0.43 per cent and a current yield of 6.3 per cent.
Polar Capital Healthcare Opportunities
The four FE Crown-rated Polar Capital Healthcare Opportunities fund is the final entrant on our list of year-in, year-out performers from the IA Specialist sector.
The $1.8bn strategy is overseen by Daniel Mahony and Gareth Powell, who joined the boutique in 2007 – Mahony from Morgan Stanley, Powell from Framlington.
Polar Capital Healthcare Opportunities targets long-term growth while preserving capital, investing in a concentrated portfolio of 40-45 stocks.
The team behind the fund focus on six major opportunities within the sector.
The first is that the operating leverage impact of new products can often be underestimated by the market. Secondly, that there is a longer investment horizon to exploit the time-value proposition of healthcare.
The third opportunity derives from the fact that specialist or niche markets are regularly overlooked by investors. Fourthly, M&A activity is often under-rated by the market.
A fifth opportunity is that new technologies can generate significant investor returns. And, finally, that there exist geographical and sector anomalies in valuation.
The Polar Capital Healthcare Opportunities has made a total return of 354.8 per cent over the past decade, while the MSCI ACWI/Health Care index is up by 245.37 per cent. It has an OCF of 1.21 per cent.