Artemis US Extended Alpha, Edgewood US Select, Schroder Strategic Credit and TwentyFour Dynamic Bond are among BMO Global Asset Management’s Kelly Prior and Scott Spencer’s favourite funds of the post-crisis bull market.
Despite a recent sell-off, markets have delivered a strong performance since the onset of the global financial crisis more than 10 years ago.
Indeed, global markets have been led by the US blue-chip S&P 500 index, which has continued on its longest-ever rally, going almost 10 years without a fall of 20 per cent or more – the commonly-used measure to define a ‘bull market’.
While some investors claim the bull-run is coming to an end as central banks begin to tighten rates and withdraw liquidity – others believe that the rally could continue into 2019.
In a new series, we decided to ask multi-managers which funds they have been most impressed with over the past 10 years, starting with BMO Global Asset Management’s Scott Spencer and Kelly Prior.
However, as BMO’s Spencer noted: “The funds that will deliver the returns of the next 10 years will be very different to the funds that have delivered the returns of the current 10 years.
“We are moving from a pro-growth environment to an environment that is going to be more of a level playing field and where stock selection will be key.”
Performance of index over 10yrs
Source: FE Analytics
He added: “There is a danger of saying what has been the best fund in this environment. Before even looking at it, I can tell you that any fund that has a good five-year track record is quality-biased; yes, it can look diversified – it may be quality-biased in European equities compared to quality-biased in Japanese equities – but it has got that bias.”
With that in mind, the first fund the manager highlighted for its performance over the bull run was the four FE Crown-rated Artemis US Extended Alpha.
The £1.6bn strategy has been run by FE Alpha Manager Stephen Moore since launch in 2014 and aims to achieve long-term capital growth by investing in the shares of companies listed, quoted or traded in the US.
“I like the strategy because it has managed to deliver outperformance in a not-that-ideal market,” said Spencer.
According to analysts at rating agency Rayner Spencer Mills, Artemis US Extended Alpha is a long/short equity strategy that targets long-term capital growth.
“The long book of this fund contains 60-95 high conviction ideas and focuses on companies with good cash flow streams and the potential to be re-rated, with the short book typically 50-95 names,” they noted.
“The investment approach used by the team looking at both upside and downside in stocks naturally lends itself to the extended alpha approach and the fund has delivered returns with better consistency than many other traditional long only funds in the sector.”
Since launch, Artemis US Extended Alpha has delivered a total return of 99.11 per cent compared with a gain of 66.48 per cent for the average IA North America sector peer and a 78.67 per cent return for the S&P 500.
The next fund highlighted by Spencer is the $4.6bn, five FE Crown-rated Edgewood L Select US Select Growth, managed by Edgewood Management, although it may be difficult for investors to access.
“The fund has only 22 stocks and it is not on any kind of platform because it is a US boutique built around US growth,” he explained.
“Edgewood L Select US Select Growth has done very well, it has outperformed everyone else; but it must be noted that there has been a good environment for it. It’s one of our best returning funds.”
Performance of fund vs sector over 10yrs
Source: FE Analytics
While the average fund in the offshore FO Equity USA sector has delivered gains of 292.82 per cent over 10 years, Edgewood L Select US Select Growth is up 436.61 per cent.
In the fixed income space, BMO’s Kelly Prior said two of the funds that she has been impressed with over the bull run were Schroder Strategic Credit and TwentyFour Dynamic Bond.
Overseen by Peter Harvey since launch in 2006, the £1.1bn Schroder Strategic Credit aims to provide income and capital growth in excess of three-month LIBOR over a rolling three-to- five year period.
It does so by investing in bonds of UK and European companies across the quality spectrum, with an emphasis on lower-rated credit in order to generate an attractive yield.
“Harvey has done a great job, he has ticked on this year and has continued to deliverer a good performance,” she said.
“It is not an exciting yield by any stretch of imagination but again he has been very defensive this year and saying: ‘these market levels are kind-of uncomfortable for me’. He still managed to generate the income and give that nice smooth return profile.”
The fund is also rated by Square Mile Consulting & Research, who noted that Harvey has created an “impressive dividend profile” on the fund.
“Whilst the yield varies somewhat depending on market conditions, the absolute value of dividends on the fund has been remarkably consistent for most of the fund's life,” said Square Mile analysts.
“This is an attractive feature and makes the fund, in our view, a compelling option for investors looking for a steady income stream in a corporate bond fund with limited interest rate risk.”
Over 10 years, Schroder Strategic Credit has delivered a 76.44 per cent total return compared with a gain of 84.24 per cent for the average fund in the IA Sterling Strategic Bond Sector. It has a yield of 4.11 per cent.
Prior’s final choice is the £1.8bn TwentyFour Dynamic Bond fund, team-managed by Eoin Walsh, Gary Kirk, Mark Holman, Felipe Villaroel, Pierre Beniquel and Robert Arnold.
Performance of fund vs sector since launch
Source: FE Analytics
“What has been very impressive in 2018 with the TwentyFour Dynamic Bond is how they took the view of taking a more defensive tactic this year albeit they have still benefitted from CLO [collateralised loan obligations] exposure and ABS [asset-backed securities] exposure,” Prior pointed out.
“They are generally a higher-beta fixed income fund manager, but they have held out very well this year.”
Since launch in May 2010, TwentyFour Dynamic Bond has delivered a gain of 58.94 per cent compared with a 42.95 per cent gain for the average fund in the IA Sterling Strategic Bond Sector. It yields 4.53 per cent.