LF Woodford Income Focus, Trojan Income and Stewart Investors Asia Pacific Leaders have been dropped from the FE Invest Approved List following the latest biannual rebalancing.
The latest edition of the Approved List saw six funds removed in total while 10 new ones were added.
The other funds dropped from FE’s preferred list are Janus Henderson European Selected Opportunities, Fidelity American Special Situations and JOHCM UK Opportunities.
New additions to the list include TB Evenlode Income, Unicorn UK Income and Veritas Asian. A full list of the changes made in the latest rebalancing can be found below.
FE Invest Approved List – fund changes by sector
Rob Gleeson (pictured), FE’s head of research said: “Since our last review back in September, what has at times seemed to be an inexorable rise in markets ended abruptly in the new year, with both bond and equity markets taking a simultaneous hit.
“Ironically this seems to have been motivated by better-than-expected economic news, leading to an expectation of faster-than-expected interest rate rises and an end to the cheap money we have seen since the financial crisis, which occurred over a decade ago.”
One of the highest profile funds to be dropped from the list is LF Woodford Income Focus, which was launched last year.
The £683.1m fund – which has more of an international focus than sister product LF Woodford Equity Income – has delivered a 1.12 per cent loss since launch last April, compared with a 5.71 per cent gain for its FTSE All Share benchmark.
Charles Younes, research manager at FE, said: “We have become concerned that too much of the fund is being allocated to smaller companies.
“There’s been some poor stock-selection decisions over the past 12 months and we no longer believe that the talents of Neil Woodford are enough to overcome these shortcomings.”
Younes said that Trojan Income – overseen by FE Alpha Manager Francis Brooke and deputy managers Hugo Ure and Mark Wharrier – had also been removed following a period of poor stockpicking, which had led to some disappointing performance.
Over three years, the £2.9bn fund has delivered a total return of 13.47 per cent compared with a 16.04 per cent gain for the average IA UK Equity Income fund and a 19.50 per cent return for its FTSE All Share benchmark. However, it should be noted that the fund has an investment objective of providing an above-average income and the potential for capital growth in the medium term.
Another fund removed from the list is Stewart Investors Asia Pacific Leaders, managed by FE Alpha Manager David Gait and co-manager Sashi Reddy. This has been a favourite among professional investors in the past but last year suffered some outflows after underperforming in 2016.
FE’s Younes said the five FE Crown-rated fund had been removed due to concerns over capacity which has become stretched and may have a negative impact on returns in the future.
“We continue to rate this fund and its management team highly but feel that there are equally good funds with better liquidity profiles on the Approved List,” he explained.
Indeed, one such example is new addition Veritas Asian, the $1.6bn five FE Crown-rated fund managed by FE Alpha Manager Ezra Sun.
“The fund is managed with an absolute return mindset,” he said. “Veritas’ management team looks for structural growth and thematic ideas in Asia, and dives deeply into fundamental analysis to find company-specific opportunities.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years the Veritas fund has generated a total return of 49.03 per cent compared with a 27.80 per cent gain for the average IA Asia Pacific Excluding Japan fund and a 26.69 per cent gain for the MSCI AC Asia Pacific ex Japan benchmark index.
Another new addition is the Dodge & Cox US Stock fund, which has been added to the list because of its value tilt and to complement other funds on the list.
The $2.9bn four FE Crown-rated fund targets long-term growth of capital and income through investment in a portfolio of undervalued stocks but with a favourable long-term growth outlook.
“Although little known here in the UK, Dodge & Cox has been very successful in the US where there are several billions under management in the strategy,” said FE’s Younes.
While two income-focused strategies exited the list in the latest rebalancing, the FE Invest analysts have added three new strategies.
Joining the list are the £275m Montanaro UK Income fund managed by Charles Montanaro and five FE Crown-rated TB Evenlode Income fund, overseen by FE Alpha Manager Hugh Yarrow and deputy manager Ben Peters.
Another new income strategy added to the list is the £628m Unicorn UK Income fund, managed by FE Alpha Manager Fraser Mackersie and co-manager Simon Moon, which aims to invest in dividend-paying stocks lower down the market cap scale.
“The fund invests in smaller and mid-sized companies, shunning the large cap market so it can look rather different to other funds in the income space that generate income from large blue-chip companies,” said Younes.
There have also been a number of changes to the FE Invest Passive Approved List, which Gleeson said made use of the FE Passive Crown ratings.
“The ratings check how well a passive fund is doing its job at tracking its benchmark over three years, which is a guide to how well that group will track an index in the future,” he said.
“The difference between the best and worst trackers/ETFs is large and makes a significant impact on the value of your investment.”
FE Invest Approved Passive List
All funds available for sale in the UK are considered for the Approved List, with data and ratings used to identify a shortlist of top performing funds. Qualitative selection criteria is then applied to produce the final recommended list.
No payment is accepted from any of the fund managers for their participation in the ratings or review process, or for their inclusion in the shortlist.