I've written before how the Covid-19 pandemic had given me more time to think about things. Well, I'm still at home, still bored and still thinking about funds.
Having decided to return to investing recently following March’s sell-off and chastened by my earlier attempts, I’ve decided to let the readers know what my next steps for my Lifetime ISA have been.
As you may or may not remember, last time I chose two UK funds given what I perceived to be a longer-term opportunity in one of the most unloved markets in the world.
I opted for the Royal London Sustainable Leaders Trust and Liontrust UK Smaller Companies funds, two strategies that I thought would be able to make the most out of any potential recovery in UK markets.
Since then, the Royal London fund is up by 9.12 per cent while the Liontrust fund has risen 7.72 per cent.
However, they have both lagged the broader UK equity market, with the FTSE All Share up by 13.66 per cent, but had I wanted to track the market I would have invested in an ETF.
Performance of funds vs index since investment
Source: FE Analytics
I believe that these strategies invest in companies that will be able to weather any future downturns and deliver strong performance over the longer term.
Nonetheless, I’ve decided that I need to balance my small UK-orientated portfolio with some good funds that can provide greater diversification and exposure to other markets.
As such, I’ve decided to opt for two global equity strategies that I believe will help me achieve my investment goals and that I hope you will find interesting.
As noted previously, I am no expert, hold no qualifications and am not allowed to give investment advice. And I look forward to being ripped apart in the comments section once again.
ASI Global Smaller Companies
This is a fund that I have backed previously and one that I keep coming back to.
In 2018, I tipped the ASI Global Smaller Companies fund – formerly known as Standard Life Investments Global Smaller Companies – as one to watch for the year ahead in the Trustnet team’s annual fund picking article. It failed to deliver a return then against a backdrop of increased US/China trade tensions, but it is one that I’ve continued to keep an eye on.
As I noted before it is a fund that I consider more of a longer-term strategy and one that I think will perform well when looked at over years, not months.
Alan Rowsell has had a strong track record since launch of the £1bn, four FE fundinfo Crown-rated strategy. Under Rowsell – who was supported by veteran smaller companies investor Harry Nimmo until December 2016 – the fund has made a total return of 207.62 per cent since January 2012 compared with a 126.78 per cent gain for its IA Global peers.
Performance of fund vs sector since launch
Source: FE Analytics
ASI Global Smaller Companies aims to generate growth over the long term – classified as five years or more – investing in small-cap stocks, targeting the return of the MSCI AC World Small Cap index plus 3 per cent (before charges).
Rowsell aims to achieve this by investing in companies included in the MSCI AC World Small Cap index or any stock with a smaller market capitalisation than the largest in the index, although it may also invest in some mid- and large-cap stocks.
The manager seeks out companies with high-quality characteristics, operating in growth markets and with positive business momentum. This is supported by the firm’s proprietary quantitative tool, Matrix, which scores and ranks more than 6,000 companies to a more manageable level, based on 13 factors – including: quality, earnings growth, momentum and valuation – that can help predict share price performance.
Each company is given a total score – with a higher score signalling a potentially more interesting idea – and used to build a list of around 100 stocks from which the highest conviction ideas are chosen.
While investing in smaller companies with greater potential for growth has the potential to deliver higher returns, but it can come with greater volatility. In addition, there is significant concentration in this portfolio, which currently numbers 48 holdings.
And Square Mile Research & Consulting has noted that the Matrix tool “can struggle at market inflection points”, although investment decisions are ultimately made by the managers.
ASI Global Smaller Companies has an ongoing charges figure (OCF) of 1.05 per cent.
LF Blue Whale Growth
This is a relatively new fund and one that you might have read about on Trustnet.
Launched in 2017, LF Blue Whale Growth – Blue Whale Capital’s first and only fund to-date – was seeded by Hargreaves Lansdown co-founder Peter Hargreaves and is overseen by FE fundinfo Alpha Manager Stephen Yiu.
Since September 2017, the £365m fund has made a total return of 56.06 per cent while its average IA Global peer has made a total return of just 20.32 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
Having spoken with (or mainly listened to) Yiu on a number of occasions since the launch of the strategy, it’s been hard not to be impressed by the manager’s transparency and approach to investing.
Companies in the portfolio typically have the ability to grow and improve profitability over the long term and are trading at valuations that are attractive relative to future growth and profitability. As such, the top-10 include names such as software provider Adobe, online retailer Amazon, consumer goods company Unilever, and payment providers Visa, Mastercard and Paypal.
The bottom-up investment style and focus on high-quality businesses trading at attractive valuations focus have helped protect it when markets have sold off.
Year-to-date, LF Blue Whale Growth is up by 10.04 per cent (as at 8 June) compared with a 0.27 per cent rise for the average IA Global fund.
And with growing pressure for active managers to prove their worth in recent years against a backdrop of increased passive inflows, Yiu has called out peers and funds that haven’t delivered.
Nevertheless – and as the manager has conceded in the past – it is a highly concentrated strategy that could find itself on the wrong side of the peer group average particularly with just over 55 per cent of the 25-strong portfolio invested in its top-10 holdings.
While it is rapidly approaching its three-year anniversary – the average holding period for a retail fund in the UK – the fund targets capital growth on a total return basis over a five-year period
However, I think the quality-growth style of the strategy should sit well in my fledgling portfolio and give it some greater diversification.
LF Blue Whale Growth has an OCF of 1.14 per cent.