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High turnover in FE Invest Approved List as uncertainty takes hold

29 October 2018

FE Invest has revealed a high turnover of funds in its latest semi-annual rebalance of the Approved List – its list of preferred funds – as uncertainty over the current cycle reigns.

By Rob Langston,

News editor, FE Trustnet

A number of high-profile funds and managers have made way for new blood in the latest review of the FE Invest Approved List – a list of preferred funds – as market conditions have become more challenging in 2018.

The six-monthly review of the Approved List by FE Invest was concluded with 20 funds making way for 19 new strategies, with the changes intended to help investors protect capital from unpredictable markets and increase portfolio diversification.

Rob Gleeson, FE head of research (pictured), said the six months since his team’s last rebalance had followed a pattern of strong equity growth punctuated by brief periods of extreme volatility.

He said: “Uncertainty over how much of the current growth is dependent on monetary policy and how much on the economy, very much defines this period for investors.

“The question will be resolved eventually, probably with a market correction, but predicting when is futile.”

Gleeson said there were significant headwinds facing markets, not least the UK’s departure from the EU and US president Donald Trump’s aggressive trade stance.

“It is impossible to know when the tipping point will come, so diversification remains an investor’s best defence,” he added

A significant number of changes in the bond sector has contributed to the higher turnover in the latest review with six funds exiting and five new funds added.

Bond funds in and out of the FE Approved List

 

Source: FE

Charles Younes, FE research manager, said the past 12 months have been “extremely challenging” for bond fund managers.

He added: “They have really seen their capacity to protect from the downside tested and many managers have fallen short in their attempts.”

Three funds managed by Ian Spreadbury are included on the list of exits – the £3.6bn Fidelity Moneybuilder Income, £1.6bn Fidelity Strategic Bond and £626.5m Fidelity Extra Income funds – as the veteran fixed income investor announced he would be stepping down at the end of the year.


 

Another high-profile casualty was the £4.5bn Invesco Perpetual Corporate Bond fund managed by veteran Paul Causer and FE Alpha Manager Michael Matthews, where FE analysts highlighted poor bond picking.

Additions to the bond list included the £790.2m, five FE Crown-rated BlackRock Corporate Bond fund overseen by Ben Edwards and the £172.1m Man GLG Strategic Bond fund managed by Simon Finch.

There were also a number of other high-profile departures from the list.

Funds in and out of the FE Approved List

 

Source: FE

Two portfolios funds managed by FE Alpha Manager Jenny Jones ­– the £1.9bn Schroder US Mid Cap and £789.2m Schroder US Smaller Companies fund – were departures from the list.

FE Alpha Manager Mark Barnett was another casualty from the list as his £374.9m Invesco UK Strategic Income fund was removed.

“Across the Invesco UK equity desk we have highlighted some weakness in stockpicking, which is why we have sold all exposure to it,” said Younes.

The £1.4bn, five FE Crown-rated LF Miton UK Multi Cap Income fund – co-managed by veteran investor Gervais Williams and FE Alpha Manager Martin Turner – was also taken off the Approved List.

However, there have also been some familiar additions to the list.



Two new UK equity funds for the Approved List both hold the maximum five FE Crown rating and are managed by FE Alpha Managers: the £456.1m CFP SDL UK Buffettology fund overseen by Keith Ashworth-Lord and Henry Dixon’s £628.1m Man GLG UK Income fund.

“The funds operate based on completely different investment strategies,” said Younes. “Despite the stark difference, the two managers have produced an outstanding track record over the last three years and have raised a lot of assets.”

Another new addition to the list is T. Rowe Price European Smaller Companies – a five FE Crown-rated, €307.5m fund run by FE Alpha Manager Ben Griffiths.

Additionally, there were changes to the FE Invest Approved Passive List.

Funds in and out of the FE Approved Passive List

 

Source: FE

Gleeson commented: “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.

“The dispersion in quality among passive funds is almost as great as it is among active funds and poor tracking and high charges can cause major underperformance.”

He added: It is important to put as much effort into identifying a good passive fund, as a poor choice can be just as destructive to wealth.”

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