Jupiter Absolute Return, RobecoSAM Smart Materials and VT Teviot UK Smaller Companies are some of the funds that could generate strong returns if the forces that have pushed the market forward in recent years start to give way to new dynamics, according to Premier Miton Investors’ Simon Evan-Cook. 
A decade of ultra-low monetary policy and lacklustre economy growth has favoured bonds and quality-growth stocks, but some investors are now concerned that portfolios have too much in these assets and little exposure to those that would come into favour if conditions change.
Evan-Cook (pictured), who runs multi-manager portfolios in Premier Miton Investors’ multi-asset team, said that should a deflationary recession come about then quality-growth stocks would good holdings. But should some other force come into play – such as an inflationary environment or widespread fiscal stimulus – then different assets will be needed.
“We’re coming to a point where people are just taking one view on everything: you just need to invest in assets that will do well in a deflationary recession or if we remain in low growth,” he said. “But in reality you need to build a portfolio of funds that can provide different answers to different questions.”
Below, Evan-Cook chooses five funds that are positioned differently to the consensus and could perform well if market conditions shift.
Jupiter Absolute Return
First up is the £1.2bn Jupiter Absolute Return fund, which is managed by James Clunie and resides in the IA Targeted Absolute Return sector.
The approach taken by the fund manager aims to exploit global equity markets, with a focus on stock selection – essentially Clunie looks for cheap companies that could rise while also seeking out overvalued stocks to short and profit from any deciles in their share prices.
Performance of fund vs sector over 3yrs
Source: FE Analytics
However, the market environment of the past few years has not suited the fund’s strategy and it is currently sitting on an 8.70 per cent loss for the past three years. This compares with a 4.73 per cent gain from the average member of the peer group.
Evan-Cook said: “Clunie is short a lot of the popular stocks, which means that his performance has looked poor over the past couple of years or so. But it has picked up a little bit over the past couple of months.
“The fund’s positioning is counter to what is popular and what is expensive currently – we would expect it to do well if the world shifted 180 degrees.”
Jupiter Absolute Return has an ongoing charges figure (OCF) of 0.85 per cent and holds an FE fundinfo Crown Rating of one.
VT Teviot UK Smaller Companies
Evan-Cook describes his next pick – the £66.3m VT Teviot UK Smaller Companies fund – as “one of [his] favourite funds at the moment”, noting that has made a total return of 20 per cent in 2019 so far – “a year that shouldn’t have suited it”.
Managed by Andrew Bamford and Barney Randle since its launch in August 2017, the fund invests in three areas that have struggled to make any meaningful progress for much of the recent past: UK equities, smaller companies and value stocks. But the fund has performed strongly despite this.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
“Since launch, the fund has done extremely well and this has been a period when small-cap value really hasn’t done particularly well,” he added.
“This situation has started to change so it will be interesting to see what this fund can do with the wind at its back, rather than in its face. If you get reflation and expansion, then companies that are priced well lowly can re-rate quite significantly with only a little improvement in the outlook.”
VT Teviot UK Smaller Companies has a 0.89 per cent OCF.
Eastspring Japan Smaller Companies
Keeping with the theme of smaller companies, Evan-Cook highlighted the £181.6m Eastspring Japan Smaller Companies fund as another counter-trend option. The fund is managed by Max Godwin and is an offshore offering domiciled in Luxembourg.
“This is another fund that we would expect to do well if there is even a slight move away from a deflationary mindset,” the Premier Miton multi-manager explained.
The fund is built around a concentrated portfolio of around 45 stocks, which the manager thinks can produce long-term stable returns but can be bought at a cheap price. Godwin has a typical holding period of around three years and ensures that the portfolio is not overly exposed to any single macro factor.
It has made a fourth-quartile total return of 12.21 per cent over the past three years but has jumped to the top of its sector as market conditions have shifted more recently. Over six months, for example, it has made 12.84 per cent against 10.54 per cent from its average peer and 8.57 per cent from its Russell Nomura Mid-Small Cap benchmark.
Eastspring Japan Smaller Companies has ongoing charges of 1.16 per cent and has an FE fundinfo Crown Rating of one.
RobecoSAM Smart Materials
Next up is RobecoSAM Smart Materials, which is managed by Pieter Busscher and sits in the offshore FO Commodity & Energy sector.
Evan-Cook noted that commodities are considered one of the go-to asset classes for rising inflationary environments, but many investors have concerns about heavy commodities and fossil fuels on sustainability or investment case grounds.
But as its name suggests, the £559.4m fund invests in companies that provide technology, products or services relating to the extraction and efficient handling of raw materials, recycling of used resources and innovative alternative materials. This means that, rather than a high allocation to commodities, a large part of the portfolio is in information technology and industrials businesses.
“That’s why this fund makes a lot of sense: it invests in companies that are helping to produce lower-carbon, more efficient alternatives to commodities and fossil fuels,” Evan-Cook explained.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
“So it can benefit from any rise in commodity prices (due to the substitute effect) but is also on the right side of the growing demand for more environmentally-friendly ways of doing business. Valuations also look relatively good at the current time and we rate the manager too.”
RobecoSAM Smart Materials has a 1.11 per cent OCF and holds an FE fundinfo Crown Rating of four.
AXA World Funds Global Inflation Bonds Redex
The final pick is the AXA World Funds Global Inflation Bonds Redex fund (specifically the sterling hedged share class), which Evan-Cook said could benefit from a shift to an inflationary world.
The fund, which is headed up by Jonathan Baltora with Elida Rhenals as deputy, was only launched in July 2018. It uses a similar strategy as Baltora’s £1.6bn AXA World Funds Global Inflation Bonds fund but reduces the sensitivity to nominal interest rates through the systematic sale of bond futures.
“We’d expect this to do well from the pick-up in breakevens without the duration to drag your returns down,” Evan-Cook explained.
AXA World Funds Global Inflation Bonds Redex has a 0.63 per cent OCF.