TwentyFour Asset Backed Income, RWC Nissay Japan and Ocean Dial Gateway to India are three boutique funds that Psigma Investment Management is holding for investors looking beyond the industry’s heavy hitters.
Martin Ward, investment analyst at Psigma Investment Management, said the three funds are among its recommended list of 30-35 funds for clients, which is evenly split between boutique firms and larger institutional players.
He said: “Our experience of working closely with boutique managers has been a positive one, and we have found them to be highly effective custodians of our clients’ assets, particularly when investing in more ‘niche’ areas of global asset markets.
“Given their boutique nature, these funds are likely to be smaller in size and therefore more nimble and efficient in navigating different market environments.”
Ward added: “Past studies have shown that although larger houses benefit from economies of scale, this does not often translate into superior performance for investors when compared to their smaller peers.
“This is not to say we have not had success with many of the larger fund houses in the industry and we continue to utilise a number of them, where appropriate on our buy list.”
Below, Ward explains why Psigma has included the funds among its recommended list.
TwentyFour Asset Backed Income
The four FE Crown-rated TwentyFour Asset Backed Income is team managed by Aza Teeuwen, Ben Hayward, Rob Ford and Douglas Charleston.
The £152.8m fixed income fund invests in a diversified portfolio of European asset-backed securities, such as residential mortgage-backed securities and other secured loans.
Ward said: “We believe that TwentyFour are a perfect example of a successful boutique asset manager and one of the best fixed interest investment teams we have ever met.
“This fund has allowed our clients to benefit from the major recovery in such assets over the last few years, while also providing healthy levels of income in a world where income has been extremely challenging to find.”
He added: “We would only be comfortable investing in such assets in our vehicle that is solely for our clients’ use as it affords us control over liquidity and allows us to be specific with the fund’s focus.”
The fund has returned 13.42 per cent over three years and has an underlying yield of 5.35 per cent.
Performance of fund over 3yrs
Source: FE Analytics
It has an ongoing charges figure (OCF) of 0.66 per cent.
RWC Nissay Japan Focus
“We have been optimistic on the potential for Japanese equities since 2011, but felt in 2015 that investors were too focused on the driving force of ‘Abenomics’ and the direction of travel of the Japanese yen, whilst wrongly ignoring the corporate revolution that was taking place across boardrooms in Japan,” said Ward.
“With companies increasingly focused on shareholder returns, we wanted to explicitly exploit this opportunity.”
He said the RWC Nissay Japan Focus fund was the “perfect fit” for its investment thesis with the manager’s sole focus on identifying companies where positive change is taking place.
The fund is managed by Yasuaki Kinoshita of Japanese asset manager Nissay Asset Management. The RWC Nissay Japan fund is collaboration between UK-based RWC and Nissay launched in 2015.
“The manager also does something almost unheard of within Japanese investing by also actively engaging with corporate managers,” explained Ward.
“We also liked the manager’s concentrated approach to portfolio management, having high conviction in his holdings and deep insight into the companies within the portfolio.”
Ward said the fund has a “fully flexible mandate and looks nothing like the wider Japanese equity index, meaning we should hopefully benefit from a truly active approach”.
He added: “We believe the manager of the fund is a genuine star and that his investment process should enable the strategy to produce compelling long-term returns.”
The fund has delivered a 48.09 per cent total return since the start of data in April 2015, compared with a rise of 29.85 per cent for the average IA Japan sector fund.
Performance of fund vs sector since start of data
Source: FE Analytics
However, in its most recent factsheet the manager noted the impact of instability in the region prompted by US president Donald Trump’s threats to put a stop to North Korea’s nuclear weapons and missile programme and lambasting of other key players in the region.
“Macroeconomic and geopolitical risk factors abound and we expect the absolute and relative performance of our portfolio to be volatile in coming months, whilst continuing to believe in the validity of our strategy of engagement with the management of high quality Japanese companies,” the manager noted in its most recent factsheet.
The fund has an OCF of 1.25 per cent.
Ocean Dial Gateway to India
Lastly, Ward highlighted the offshore $315m Ocean Dial Gateway to India fund, which the Psigma first invested into in May 2015.
He highlighted the experience and “exceptional track record” of managers Sanjoy Bhattacharyya and David Cornell.
“We are fans of their investment approach because the team only focus on what they know and understand and, similarly to our own investment philosophy, are solely concerned with ‘absolute’ rather than just ‘relative’ returns,” he explained.
“The fund typically has a small- and mid-cap company bias, as these are the areas of the wider equity market where the team believe there are the largest opportunities, often as a result of a lack of analyst coverage.”
The fund’s managers believe optimal returns will be generated over time by investing in companies that are well placed to benefit from the structural growth potential of the Indian economy, combined with the highest quality of management best able to exploit this opportunity.
Using a bottom-up stock picking process the fund’s managers select investments from a bucket of best ideas, unconstrained by a benchmark.
“We agree wholeheartedly with their view and feel strongly that these are the most fertile hunting grounds for the best long-term growth opportunities in India,” added Ward.
“We are also encouraged that they have a local presence, which we think is absolutely imperative when investing in India.”
Over three years the fund has returned 50.72 per cent, slightly lower than the 54.69 per cent return for the average fund in the FCA Offshore Equity - India (FO Equity - India) sector, but ahead of the S&P BSE Dollex 30 index benchmark’s 37.64 per cent gain.
Performance of fund vs benchmark over 3yrs
Source: FE Analytics
However, Ward noted that the fund had soft-closed to new investors, “highlighting the willingness of the managers to protect existing investors and not chase assets”.
The fund has an OCF of 1.55 per cent.