Jupiter Merlin Balanced, T. Rowe Price Global Focused Growth Equity, Premier Defensive Growth and Magna Emerging Markets Dividend are Chelsea Financial Services’ Darius McDermott’s four funds to consider given the lack of attractive opportunities.
As markets have shrugged off many of the geopolitical headwinds and continued to move higher, investors have become increasingly concerned over valuations and are struggling to find obvious “buy” opportunities.
“It is pretty hard to know what assets to favour as there is nothing really shouting ‘buy me, please’,” said McDermott.
The managing director noted that when Shinzo Abe was elected as prime minister six years ago Japanese equities were in ‘buy me, please’ territory as valuations were cheap, leading them to back Japan in a big way.
Now, however, there aren’t any real stand-out opportunities to be found, according to McDermott, although the team has recently been adding emerging markets funds.
“Europe is cheaper than the US and Japan is cheaper but I think that is because it is very expensive, which doesn’t mean that it can’t get more expensive,” he noted.
As the below chart shows, just over a decade since the onset of the global financial crisis the S&P 500 has continued to grow – albeit at a slower rate more recently – growing by 290.54 per cent over 10 years.
Performance of S&P over 10yrs
Source: FE Analytics
Given the current investment environment and the generally high valuations in markets, FE Trustnet has asked a number of industry experts which funds they prefer considering the lack of obvious “buy” opportunities, starting with McDermott.
Jupiter Merlin Balanced
A fund-of-funds investing in global equities and fixed interest markets is McDermott’s first choice, the four FE Crown-rated Jupiter Merlin Balanced Portfolio.
“This fund-of-funds can hold anywhere between 40 per cent and 85 per cent equities in its portfolio, so it should be well-diversified in terms of asset class at any one time,” he explained.
“As the fund's name suggests, the managers adopt a balanced approach to risk and look to achieve both growth and income for their investors.”
The £1.7bn fund is overseen by a team of five including FE Alpha Managers Algy Smith-Maxwell and John Chatfeild-Roberts, who have run the strategy since 2002.
“The managers process is all about carefully scrutinising fund managers themselves in order to find the very best within each asset class and region,” said Chelsea Financial Services’ managing director.
One of Jupiter Merlin Balanced key features is its conviction led portfolio, built without reference to the peer group benchmark, an approach that seems to have helped the fund outperform over the long term.
Jupiter Merlin Balanced portfolio has been top quartile over one, three and five years, posting a 49.74 per cent total return over the latter period mentioned.
The fund has an ongoing charges figure (OCF) of 1.62 per cent.
T. Rowe Price Global Focused Growth Equity
A global equity fund is next on McDermott’s fund picks, the five FE Crown-rated T. Rowe Price Global Focused Growth Equity, overseen by David Eiswert.
“Unlike some of his global peers, David Eiswert will look anywhere in the world for companies with strong growth potential, including emerging markets,” said McDermott.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
“The big philosophy underpinning the fund is disruption: he looks to find the companies which can offer a fresh new perspective within their fields of expertise, which should win them a sustainably high market share.
“David is very much a bottom-up stockpicker and focuses more on sector than he does on country. However, he also takes macro risk into account,” McDermott added.
T. Rowe Price Global Focused Growth Equity is currently overweight US equities, India, Taiwan, China and Sweden and has a 34.5 per cent allocation to information technology.
Over five years, the fund has delivered a 132.30 per cent return compared with a 65.06 per cent gain for the average fund in the IA Global sector and a gain of 74.11 per cent for the MSCI AC World index. It has an OCF of 0.92 per cent.
Premier Defensive Growth
For investors who are feeling particularly cautious at the moment, McDermott believes the four FE Crown-rated Premier Defensive Growth might be a good option.
The multi-asset portfolio aims to post a positive return over a rolling 36-month period with an emphasis on generating significantly lower volatility than global equity markets. The fund also offers a lower correlation to traditional asset classes such as bonds and equities.
“Manager Paul Smith picks assets based on whether they have at least one of two ‘Fs' – a fixed life, or a fixed entitlement investment,” said McDermott.
“This means the portfolio should behave predictably, because it makes it easier for Paul to identify major risks to assets, and how each investment will respond in an economic downturn. This is how he has managed to maintain such a low level of volatility over the long term.”
Over five years, Premier Defensive Growth has delivered a 9.65 per cent total return compared with a gain of 12.20 per cent gain for the average IA Targeted Absolute Return fund – although it should be noted that the sector is home to a range of strategies. The fund has an OCF of 0.85 per cent.
Charlemagne Magna Emerging Markets Dividend
An emerging markets fund is the Chelsea Financial Services managing director’s final choice, Mark Bickford-Smith’s Magna Emerging Markets Dividend.
“While I wouldn't say we have huge conviction in emerging markets currently, we still like the sector's long-term prospects,” he pointed out. “We also think emerging markets are attractive relative to developed markets and we've been adding a little during the dips.
“One fund we particularly like is Magna Emerging Markets Dividend, as Mark Bickford-Smith looks for emerging market companies which pay a higher-than-average dividend.”
He added: “This means the fund has slightly lower risk profile than many of the funds in its sector, as well as a higher yield which should help cushion again market falls.”
Performance of fund vs sector over 5yrs
Source: FE Analytics
Whilst the average fund in the IA Global Emerging Markets sector is up 39.32 per cent over five years, Charlemagne Magna Emerging Markets Dividend has delivered a gain of 30.43 per cent. It has a yield of 3.72 per cent and an OCF of 1.37 per cent.