Quality growth and more internationally-focused funds could make ideal candidates to hold alongside last year’s top-performing IA UK All Companies fund, Franklin UK Mid Cap, Trustnet has found.
After asset manager Franklin Templeton announced last month that the £1.4bn fund’s manager Paul Spencer would be retiring in September, Trustnet asked whether investors should stick with the fund or step away.
During Spencer’s 14 years on the fund, it has made an impressive 424.28 per cent total return, significantly higher than his IA UK All Companies’ peer group 128.73 per cent over that time frame.
Performance of fund vs sector under Spencer
Source: FE Analytics
Nevertheless, Charles Stanley's pensions and investment analyst Rob Morgan and AJ Bell’s head of active portfolios Ryan Hughes both agreed that Spencer’s departure should not be a catalyst to pull out of the fund.
In fact, both were supportive of the Spencer’s replacement, Richard Bullas, who has been on the Franklin UK Mid Cap fund since 2013.
With this in mind, Trustnet asked which funds the market commentators recommended holding alongside Franklin Templeton UK mid-cap strategy under its new manager.
Ryan Hughes: Investec UK Alpha
The first recommendation comes from AJ Bell’s Hughes who opted for the £2.3bn Investec UK Alpha fund. The quality growth fund – overseen by Simon Brazier – sits alongside the more specialist mid-cap strategy as a core UK equity holding.
“This is pretty focused on large caps, making it a good complement to the mid cap focus of Franklin and giving the portfolio broad-based exposure across the FTSE 350,” said Hughes.
Hughes said Brazier “looks to exploit the inefficiency in the market that exists due to investors being too focused on the short term”, taking a long-term view of markets.
“With a focus on quality, companies will typically be profitable, generate cash flow and have strong management,” he said. “With no clear style bias, Brazier looks to generate consistent incremental outperformance and shouldn’t be too far away from the benchmark in any given year.”
He added: “As a result this blends well with a dedicated mid cap fund that may swing in and out of favour, particularly as the UK looks to agree a trade deal with the EU that could bring volatility to the UK market as the negotiations play out over the coming months.”
Performance of fund vs sector & index over 3yrs
Source: FE Analytics
With returns of 20.27 per cent over the past three years the fund has outperformed the IA UK All Companies sector (20.19 per cent) and the FTSE All Share index (18.44 per cent).
Investec UK Alpha has an ongoing charges figure (OCF) of 0.82 per cent.
Tracy Zhao: Legg Mason IF RARE Global Infrastructure Income
Tracy Zhao, investment research analyst at The Share Centre, opted for another specialist fund to sit alongside Franklin UK Mid Cap: Legg Mason IF RARE Global Infrastructure Income.
The fund aims to generate stable income from listed infrastructure companies in North America, Europe – including UK – and emerging economies as well.
“With the global growth stalled and lower interest rates likely to stay; any fiscal expansion will give infrastructure an injection,” she explained.
Managed by David Maywald, Nick Langely, Shane Hurst and Daniel Chu the £577.3m fund has made a return of 39.38 per cent over the past three years, outperforming the average IA Global Equity Income peer’s 22.28 per cent.
Performance of fund vs sector over the past 3yrs
Source: FE Analytics
Its biggest sector weighting is to electricity supply where more than half the portfolio is allocated (54.98 per cent). And the biggest asset allocation is Canadian electricity transmission and distribution company Hydro One Ltd, with 4.87 per cent allocation.
Legg Mason IF RARE Global Infrastructure Income fund has a yield of 5.70 per cent and an OCF of 0.93 per cent.
Liontrust Special Situations
Finally, Charles Stanley’s Morgan noted that the Franklin Templeton fund was already “quite diversified in terms of its exposure to overseas and domestically facing companies” and as such was recommending a UK equity fund with more international exposure.
“The fund could pair well with a FTSE 100 tracker, which will offer exposure to primarily internationally facing companies, or to an active fund with lots of FTSE 100 and other international exposure such as Liontrust Special Situations,” he explained.
The £3.6bn Liontrust fund is managed by FE fundinfo Alpha Managers Anthony Cross and Julian Fosh using their proprietary Economic Advantage process.
“I like the uncomplicated but effective investment approach adopted in the fund and the consistency in which its been applied,” said Morgan. “The managers look for good quality businesses and are less sensitive than many of their peers over the price they pay for that quality.
“There is a relatively concentrated portfolio, meaning each idea has a significant bearing on performance, and low turnover.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The five FE fundinfo Crown-rated und has made returns of 34.34 per cent over the past three years, outperforming the IA UK All Companies sector (20.19 per cent) and the FTSE All Share index (18.44 per cent). Liontrust Special Situations has an OCF of 0.89 per cent.