While it is undoubtedly important to have assets that will protect you when the wider market tanks, aggressive investors – who are happy to stomach the volatility – can usually afford to hold a higher risk fund that has the potential to deliver very high returns over the long term.
With that in mind, we ask the experts which specialist equity funds they would recommend for people who want to spice up their portfolio and make their hard earned cash work harder.
GLG Technology Equity
Rob Morgan (pictured), pensions and investment analyst at Charles Stanley Direct, has a long term investment horizon and therefore is happy to take a higher degree of risk.
One fund he has been topping up for his own portfolio is the sector specialist GLG Technology Equity fund, which is managed by Philip Pearson and Andrew Burton. “It was down about 10 per cent in March, as there was a big correction in stocks like Facebook and Google. It’s difficult to quantify those companies long term success and you might consider them to be expensive, but the fund gives you exposure to exciting parts of the market,” Morgan said.
“It is run by sector specialists and is a very well-managed portfolio. I like the high conviction nature of the fund, but it is at the risky end of the tech funds which is demonstrated by its recent volatility.”
Pearson and Burton have managed the £200m GLG Technology Equity fund since June 2009, over which time it has returned 111.86 per cent. However, it has narrowly underperformed against the IMA Technology & Telecoms sector over that time.
Performance of fund vs sector since June 2009
Source: FE Analytics
The fund is very concentrated with its top 10 holdings making up 47 per cent of its total assets under management. While more than half of the portfolio is invested in the US, it also has exposure to Europe, UK and Asia.
The fund’s clean share class has an ongoing charges figure (OCF) of 1.11 per cent.
Aberdeen Latin American Equity
Morgan also likes the Aberdeen Latin American Equity fund for long term investors.
Latin America, like other parts of the developing world, have been massively out of favour over the last three years as concerns have grown over slowing growth in emerging markets and because of more recent factors such as weakening currencies.
However, Morgan says that if investors are comfortable weathering volatility, the Aberdeen Latin American Equity fund can benefit from the long term emerging market growth story.
“It’s one that I am keeping an eye on,” Morgan said. “Like a lot of Aberdeen funds, it has had a tough time recently and while the fund and the region have bounced back recently, it’s still a very cheap destination for long term investors.”
“Emerging markets will come back again, but at the moment it is a growth story that has fallen off peoples’ radar.”
The £64m fund was launched in February 2011 and the period since then has been a very poor one for emerging market equities. While the fund has lost 15.81 per cent since its launch, its benchmark – the MSCI EM Latin America 10/40 index – has lost more than 20 per cent over the same period.
Brazilian and Mexican equities make up the lions-share of the portfolios holding, though the fund also holds companies listed in Chile, Colombia, Argentina and Peru.
Its OCF is 1.25 per cent.
Legg Mason Japan Equity
Having performed strongly over recent years, Japanese equities have stuttered while the market waits for signs that Prime Minister Abe’s “Third Arrow” has been fired. Nevertheless, a number of experts – such as the team at Ruffer – have said this is just a pause in an upward trend.
For those investors who to benefit from the recovery in Japan, the Share Centre’s Andy Parsons recommends the £247.8m Legg Mason Japan Equity fund as it makes the most out of rising markets.
“The Legg Mason Japan Equity fund, managed by Hideo Shiozumi, seeks to benefit from the economic and structural changes that Japan faces,” Parsons said.
“These changes may be the result of the continuing and ongoing rapid emergence of the internet as a sales channel, the opportunities created by the ageing population, or the medical and long-term care industries needed to help support the nation.”
The fund has, in the past, massively outperformed during bull markets but has fallen a lot further than its peers during times of weakness and considerably underperformed against the IMA Japan sector and the TOPIX in the falling markets of 2006, 2007, 2008 and 2009
Performance of fund vs sector and index in 2013
Source: FE Analytics
However, it has been the best performing fund over five years due to its top quartile returns in 2011, 2012 and 2013. Last year, for example, it was the sectors best performing portfolio with returns of 63.65 per cent and beat the TOPIX by close to 40 percentage points.
The fund invests across the Japanese market, though it does have a bias to the lower parts of the market cap spectrum. Its OCF is 1.19 per cent.
Marlborough UK Micro Cap Growth
Another strategy could be to use a fund which invests in companies with very small market-cap as they can grow into much larger institutions over time and reward shareholders in the process.
Charles Younes, analyst at FE Research, says that if investors are going to invest in micro caps they should choose a manager who has a long term track record of adding value in the asset class, and therefore rates FE Alpha Manager Giles Hargreave’s Marlborough Micro Cap Growth fund.
“Marlborough UK Micro Cap Growth is one of the best UK funds in terms of performance and quality of investment team,” Younes said.
“Stockpicking is the main driver of performance in micro-cap investing, which puts the emphasis on in-depth knowledge of companies and works in this fund’s favour.”
“The fact that Hargreave invests in a large number of stocks adds stability and limits the impact a single poorly performing company can have on the fund.”
According to FE Analytics, the five crown rated Marlborough UK Micro Cap Growth fund has been a top quartile performer since in the IMA UK Smaller Companies sector since its launch in October 2004. It has also been top quartile over one, three, five and seven year periods.
Performance of fund vs sector since Oct 2004
Source: FE Analytics
However, despite those high returns and given the funds relatively risk characteristics, Younes says investors should only buy into the fund if they willing to invest for at least ten years and can tolerate short-term losses while chasing long-term gains.
The fund’s clean share class has an OCF of 0.81 per cent.
