Funds such as Liontrust UK Smaller Companies and Ninety One UK Special Situations are among those that investment experts think could thrive once the UK’s coronavirus recession is over.
However, the ONS data indicated that the worst may already have passed – assuming another lockdown is avoided – after the economy grew by 8.7 per cent in June, which correlated with the easing of lockdown measures and non-essential businesses reopening.
Will Hobbs, chief investment officer at Barclays, said: “The world’s governments put large chunks of the global economy into a kind of suspended animation in order to facilitate the fight against the virus.
“This has created a recession of jaw dropping statistics, but is already informing a much brisker than normal recovery from those lows. Just as the second quarter registered record breaking declines in output for many of the world’s major economies, the third quarter will likely see some of the fastest ever quarterly rises.”
In light of that Trustnet asked six market experts for funds to capture the UK’s economic coronavirus recovery, whenever it comes about.
Slater Recovery
The UK market has significant international exposure with around three-quarters of the FTSE 100’s underlying revenues generated overseas.
For Tilney Investment Management Services managing director Jason Hollands, this means investors need to be “discerning in their fund choices, identifying funds with relatively high exposure to more domestically facing businesses” when looking for strategies that will do well in a recovery.
“One fund that broadly fit this bill is the minnow sized Slater Recovery fund,” Hollands said, as the £95m fund’s underlying exposure to UK revenues is about 52 per cent.
“In essence, it is multi-cap fund but with a significant bias to smaller companies,” he added.
Headed up by FE fundinfo Alpha Manager Mark Slater, the fund has outperformed the IA UK All Companies sector over the past three years, making a total return of 25.25 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Slater Recovery has an ongoing charges figure (OCF) of 0.79 per cent and an FE fundinfo Crown Rating of five.
Ninety One UK Special Situations
For investors building a portfolio for the UK’s recovery, FundCalibre’s Juliet Schooling Latter said: “You need to look at what has struggled the most but is also likely to survive. The most obvious sector today is the travel and leisure industry – and the companies that will come out stronger.
“You can also look at those that are best positioned to benefit from an increase in spending as we bounce back, such as construction. With that in mind, my pick is the Ninety One UK Special Situations fund.”
The value fund has exposure to the leisure and travel sector with holdings such as EasyJet, RyanAir and cruise company Carnival.
It was recently taken over by Alessandro Dicorrado and Steve Woolley after longstanding manager Alastair Mundy took an extended leave of absence from all his funds for health reasons.
Ninety One UK Special Situations takes a strong position on the UK’s outlook remaining positive, meaning that “there is little to no protection in the portfolio if things worsen and a second lockdown or further slowdown could hurt the fund,” Schooling Latter said.
The £482.8m fund has underperformed both its average IA UK All Companies peer and FTSE 100 benchmark over three years with a loss of 20.71 per cent, reflecting the poor performance of the value style in recent years.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
It has an OCF of 0.82 per cent.
Franklin UK Mid Cap
The £1.1bn Franklin UK Mid Cap fund was picked by AJ Bell head of active portfolios Ryan Hughes, who said “identifying which parts of the market are well placed to benefit from a recovery is a key part of thinking about which funds should benefit.”
“With the FTSE 100 index being dominated by international earners, it’s perhaps prudent to look to a more domestically oriented funds and that pushes you more towards the mid- and small-cap space,” he said.
Franklin UK Mid Cap is managed by Richard Bullas, Daniel Green, Mark Hall, and Marcus Tregoning. The fund has a strong long-term track record and is the IA UK All Companies sector’s best performer over 20 years.
The fund is overweight consumer cyclicals and industrials, which Hughes said should hopefully help them be well placed for a UK recovery.
Its 1.56 per cent total return means the fund has outperformed both its average IA UK All Companies peer and the FTSE 250 ex ITs index over the past three years.
The fund’s OCF is 0.83 per cent. It has an FE fundinfo Crown Rating of four.
Franklin UK Smaller Companies
Next is the £248.9m Franklin UK Smaller Companies fund, which is co-managed by Bullas, Hall, Green and Tregoning also.
Charles Stanley Direct’s Rob Morgan said the fund is managed “in a disciplined but pragmatic fashion, encompassing both faster-growing companies and less expensive ‘value’ stocks”.
Around 40 per cent of the portfolio is held in high quality growth names, but is also offers exposure to stocks where the valuation is lower than company fundamentals warrant and cyclical recovery plays, which might outperform in a market or economic recovery.
Franklin UK Smaller Companies made a total return of 3.81 per cent over three years. It has an OCF of 0.83 per cent.
Liontrust UK Smaller Companies
Tom Rosser, investment research analyst for Share Centre, went for Anthony Cross and Julian Fosh’s £1.1bn Liontrust UK Smaller Companies fund. Victoria Stevens and Matthew Tonge work alongside Cross and Fosh on the fund.
“Small firms are vital for post-lockdown recovery and are often considered the sweet spot of growth when an economy is doing well or at least rebounding from its lows,” Rosser said.
“Evidence suggests over the long term that they tend to outperform their larger counterparts so should certainly be considered. Liontrust UK Smaller Companies is one of the strongest offerings in this space.”
Rosser said the fund’s “tried and tested” process is well placed to take advantage of the support smaller companies will receive from the government’s ongoing stimulus measures, as well as some security from a potential Brexit deal in December and a consequentially strengthened pound.
The fund made a total return of 29.24 per cent over the past three years, beating both its peer group and index.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
It has an OCF of 1.38 per cent and an FE fundinfo Crown Rating of five.
Jupiter UK Special Situations
John Monaghan, head of research at Square Mile Investment Consulting & Research, opted for Jupiter UK Special Situations as his fund for a UK recovery.
The fund has been managed by Ben Whitmore since 2006 and is run in what Monaghan called “a very focused manner”. Whitmore has a value-focused investment approach, which seeks out companies that are undervalued relative to their longterm history but have the potential to turn around.
“One of the most compelling features of this strategy is Whitmore’s highly disciplined ability to remain dispassionate about companies and investments, meaning that the portfolio is consistently a true representation of his philosophy and process,” the analyst added.
Jupiter UK Special Situations has underperformed its peer group over three years, with a loss of 13.74 per cent versus the IA UK All Companies’ 4.84 per cent loss. Again, this has been a challenging time for value investors.
It has an OCF of 0.76 per cent.