Emerging markets had a tough time in 2013, while developed markets were picking off their biggest gains since before the credit crunch.Delyth Richards (pictured), head of fund research at Kleinwort Benson, is backing funds that have been able to perform well in spite of this headwind.
She reveals four funds her firm is currently backing.
Fidelity Emerging Markets
“Emerging markets had a difficult time during 2013, when the broad MSCI Emerging Markets benchmark fell 4.4 per cent in sterling terms,” Richards said.
However, the five crown-rated Fidelity Emerging Markets fund, headed up by FE Alpha Manager Nick Price, managed not only to outperform the sector and index last year, but delivered positive returns of 9.44 per cent, according to FE Analytics.
The £480m fund has consistently beaten both the IMA Global Emerging Markets sector and the MSCI Emerging Markets index over the last one and three years.
The fund has made 11.13 per cent since launch in June 2010, compared with losses of 2.83 and 2.54 per cent from the sector and index, respectively.
Performance of fund vs sector and index since 2010
Source: FE Analytics
“Price invests in companies which deliver higher levels of returns on assets and have stronger balance sheets than their peers, because they should be able to fund growth without the need for further capital from shareholders,” she said.
“The fund is reasonably concentrated at around 80 positions. It tends to be invested in large cap growth-orientated names and maintains a high percentage of active money, increasing the opportunity for outperformance.”
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.78 per cent.
Baillie Gifford Shin Nippon IT
Richards prefers a closed-ended investment trust to play the Japanese recovery, in the form of Baillie Gifford Shin Nippon.
“Baillie Gifford’s Shin Nippon investment trust has been the best performer among our Japanese equity selections over the last three years,” she said.
“The trust invests in growth-orientated companies because Baillie Gifford believes that Japan offers investors growth at cheaper valuations than elsewhere in the world.”
“While a weakening [yen] has favored large cap exporters, being further down the capitalisation scale means this trust is exposed to the domestic growth that prime minister Shinzo Abe’s ‘three arrows’ are targeting.”
Richards points out the trust is currently trading at a 7.8 per cent premium to NAV – far wider than its three-year average discount of 1.41 per cent – but she says watching this for any weakness could reveal an opportune entry point.
The trust has certainly benefited from rising Japanese markets, but it has held up over the long-term as well.
Shin Nippon has outperformed the MSCI Japan Small Cap index and IT Japanese Smaller Companies sector over one, three, five and 10 years.
The trust has returned 242.06 per cent over the last five years, nearly five times as much as the index and almost double the gains of other trusts in the sector.
Performance of trust vs sector and index over 5yrs
Source: FE Analytics
The trust is geared at 12 per cent and has ongoing charges of 1.53 per cent.
Arisaig Consumer Fund
The Arisaig Consumer Fund has been a staple in Kleinwort Benson’s portfolios over the years, according to Richards.
“This fund has returned 192 per cent over the five years to the end of January 2014, outperforming MSCI Asia Pacific ex Japan, which returned 97 per cent in sterling terms over the same period,” she said.
This fund is an unregulated collective, managed by Arisaig, a boutique with its head office in Singapore.
“The manager believes that consumer staples outperform over time, and this fund has focused on investment in consumer staples in Asian markets, seeking to identify companies that are leaders in their market sector.”
“The portfolio typically invests in 20 to 30 high-conviction stocks. The investment manager believes in engaging with companies, and tends to hold positions in the fund for a long time.”
“This fund is now closed to new investors, having reached capacity for the strategy, but we continue to like the theme and believe that this fund will continue to do well over the medium- to long-term.”
Ardevora UK Equity
In the UK, Richards thinks Ardevora UK Equity is well positioned for the year ahead.
“A fund that should continue to do well in 2014 is Ardevora UK Equity, managed by Jeremy Lang,” she said.
“Ardevora was founded in 2010 by former Liontrust and James Capel managers Jeremy Lang and William Pattisson, both of whom have strong track records.”
The £143m Ardevora fund has significantly outperformed the IMA UK All Companies sector over the last one and three years.
The fund has beaten the FTSE All Share over each period.
Ardevora UK Equity has made 76.02 per cent since launch in February 2011, compared with 33.29 and 26.51 per cent from the sector and index, respectively.
Performance of fund vs sector and index since 2011
Source: FE Analytics
“[The fund] considers the behavioural biases of investors, analysts and company management teams to identify opportunities where behavioural bias results in mispriced stock opportunities,” Richards said.
“Selection is based primarily on balance sheet analysis and reviews of company accounts. The team currently avoids banks and other financials such as insurance companies, because of the complexity of their reports and accounts.”
The managers are tipped towards consumer products, with 47 per cent of the fund invested in the sector.
Financials make up just 4 per cent of the portfolio.
The fund requires a minimum investment of £5,000 and has an annual management charge (AMC) of 1.75 per cent.
