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The six funds that FE Trustnet’s editor is buying for his newborn baby

09 November 2018

FE Trustnet editor Gary Jackson highlights the six funds that will go into his first son’s Junior ISA and Junior SIPP.

By Gary Jackson,

Editor, FE Trustnet

A value-orientated multi-manager fund, exposure to long-term megatrends, plenty of smaller companies and emerging market holdings, and a defensive ‘parachute’ are going to form the basis of my first child’s portfolio.

Since coming back from paternity leave, I’ve been thinking a lot about where to invest for my son Magnus (pictured) in his own portfolio. This will be in two pots: a modest amount going into a Junior ISA that he will receive when he is 18 and a more substantial sum being held in a Junior SIPP to lay the groundwork for his eventual retirement.

Both pots will be identical and will comprise six funds. Two of these will form the core of the portfolio with the remaining four being smaller satellite holdings to add a little juice or, in one case, offer some peace of mind.

Below, are the six funds I am using to safeguard Magnus’s financial future.

 

Premier Multi-Asset Global Growth

Forming the core of Magnus’ portfolio with a 40 per cent allocation is the five FE Crown-rated Premier Multi-Asset Global Growth fund, a multi-manager portfolio headed up by the highly respected team of David Hambidge, Ian Rees, Simon Evan-Cook and David Thornton.

The £213.9m fund has a valuation-aware approach that means it only invests where the team perceives a discount to the current market value. This has stood it in good stead and the fund is currently top quartile in the IA Flexible Investment sector over three and five years; since the team took over in July 2012, its 111.62 per cent total return is the sixth highest out of 105 of its peers.

Performance of fund vs sector under management team

 

Source: FE Analytics

Analysts at Square Mile Investment Consulting & Research have given Premier Multi-Asset Global Growth an ‘A’ rating, saying: “We have a high regard for this focused and stable team that is led by the experienced David Hambidge. They have an excellent appreciation of the outcomes that investors seek and this diversified, primarily equity, portfolio has generated performance that has met its objectives since the team took responsibility for the fund in 2012.”

Performance aside, another reason I like this fund is the transparent manner in which Premier operates. Investors are often told they need to understand exactly how a fund is being run but in practice it can be challenging to find this information; the Premier multi-asset team, meanwhile, publishes regular insight pieces on the firm’s website (see the latest one here) as well as trading notes (a recent example here) explaining why holdings have been added to or dropped from its portfolios.

Premier Multi-Asset Global Growth has an ongoing charges figure (OCF) of 1.77 per cent and is producing a small yield of 0.66 per cent.


Pictet Global Megatrend Selection

The second core fund in my child's portfolio is Pictet Global Megatrend Selection, with a weighting of 20 per cent. This $7.3bn fund is managed by Pictet's longstanding thematic equities team and invests in nine megatrends: clean energy, digital, health, nutrition, premium brands, robotics, security, timber and water.

In some ways, Evan-Cook – one of the managers of Premier Multi-Asset Global Growth – might not approve of this being in my portfolio. I know from speaking with him recently that his geographic preference is “anywhere but the US” (close to 60 per cent of the Pictet fund is invested there) while he is sceptical about the value of dedicated thematic funds.

Performance of fund vs sector and index since launch

 

Source: FE Analytics

That said, I think Pictet Global Megatrend Selection is an appropriate fund for this portfolio. While it does have a high exposure to the expensive US market, this is targeted at the very areas I expect will come to the fore over the next few decades – how we deal with climate change, the rise of automation, ageing demographics and the like. That said, I do think its growth bias could mean a challenging few years in the short term.

Since launch in October 2008, the fund has made a 247.03 per cent total return, outpacing both its average IA Global peer and the MSCI World index. This outperformance comes off the back of high exposures to the US and the information technology sector; both areas now look expensive but if the managers do their jobs properly they should be targeting companies that are linked to some pretty powerful long-term themes.

Pictet Global Megatrend Selection has an ongoing charges figure of 1.21 per cent.

 

Liontrust UK Micro Cap

Having an investment horizon of 18 years means this portfolio can tolerate a high weighting to riskier areas of the market such as smaller companies. With higher risk comes the potential for higher growth so with this in mind the first of four satellite holdings (each with a 10 per cent weighting) is Liontrust UK Micro Cap.

This £36m portfolio is managed by the FE Alpha Manager duo of Anthony Cross and Julian Fosh along with Matthew Tonge and Victoria Stevens. It has made 50.38 per cent since launch in March 2016 and the managers’ Economic Advantage process has been tried and tested on other successful UK equity funds run by Liontrust.

Performance of fund vs sector since launch

 

Source: FE Analytics

The FE Invest team, which has the fund on its Approved List, said: “We think it is a good option for investors who want access to the powerful strategy. In the short time since launch the fund has performed roughly as we would expect it to given the track record of the Liontrust UK Smaller Companies fund.”

Liontrust UK Micro Cap has an OCF of 1.41 per cent, owing to an annual management charge of 1.25 per cent. FE Invest analysts note that this is “high” but added that it has been set at this level in part to deter short-term investors, who should not really be holding such a product.

 


Standard Life Investments Global Smaller Companies

In keeping with wanting a higher exposure to smaller companies, Magnus’s portfolio also has an allocation to the £1.5bn Standard Life Investments Global Smaller Companies fund.

Headed up by Alan Rowsell since launch in May 2012, this five FE Crown-rated fund is overseen by UK small-cap veteran Harry Nimmo and makes use of the Matrix proprietary quantitative tool that proved its worth on Nimmo’s respected Standard Life Investments UK Smaller Companies fund.

Performance of fund vs sector since launch

 

Source: FE Analytics

Square Mile Investment Consulting & Research has given the fund an ‘A’ rating. Its analysts said: “Ultimately, it is the manager and management team that will drive the success of the strategy and here we consider Mr Rowsell and his colleagues to be more than up to the task. Mr Rowsell clearly has a very good understanding of his asset class and shows a deep commitment to the fund's investment philosophy and process. In essence, this could be viewed as a lower risk way to access global smaller companies.”

Standard Life Investments Global Smaller Companies has an OCF of 1.05 per cent.

 

Neptune Emerging Markets

As well as smaller companies, a tilt towards emerging markets is also an appropriate strategy for a portfolio with such a long time horizon. To take this exposure, I’ve opted for Ewan Thompson’s £48.9m Neptune Emerging Markets fund.

Since launch in September 2008, this four FE Crown-rated fund has made a 133.78 per cent return and outperformed both its average IA Global Emerging Markets peer and the MSCI Emerging Markets index. It is also top quartile in the sector over three and five years.

Performance of fund vs sector and index since launch

 

Source: FE Analytics

The reason I like the fund is its cyclical bias, which I believe will pay off over the long term as emerging market economies continue to strengthen. The fund also looks a little different to other emerging market portfolios, with an underweight to China but significant overweights to the likes of Russia and Brazil.

Neptune Emerging Markets has a 0.90 per cent OCF.

 


Schroder MM Diversity

The final satellite fund in this portfolio is one that looks very different to the risk-on options highlighted above: Schroder MM Diversity. This £615.6m multi-manager fund is run by Marcus Brookes and Robin McDonald; it holds just one FE Crown following several years of lacklustre returns.

Brookes and McDonald have maintained a very cautious stance in recent years – at the moment 23.3 per cent of the portfolio is in cash with another 33.4 per cent in alternatives (typically long/short funds with a defensive bias) – as they believe the liquidity-fuelled bull run has left many assets looking expensive and is prone to significant falls.

Performance of fund vs sector and index under Brookes and McDonald

 

Source: FE Analytics

While this positioning has hampered the fund in recent years and seen it miss some strong returns, I want Schroder MM Diversity in Magnus’ portfolio as I don’t feel comfortable without some form of parachute. Having a holding set up to weather rough markets – this was the only IA Mixed Investment 20-60% Shares member to make money in the October sell-off, for example – means I will be less inclined to tinker with the long-term portfolio in market downturns.

Furthermore, the fund is positioned for a very different environment to the one that has dominated markets in recent years. Should market conditions swing away from growth and tech names – in a coming article, McDonald will explain why he thinks this could occur in the next 12 months – then this portfolio appears to be set up to capitalise on that.

Analysts at Square Mile Investment Consulting & Research, which rate the fund ‘A’, added: “The managers are willing to take strong views and have the courage to back them strongly within the fund's positioning. They are therefore willing to adopt positions which are very different to many of their peers and at times patience may be needed as their performance may deviate significantly from other funds in their peer group.

“Longer term we believe this patience will be rewarded in the form of superior risk­adjusted returns compared with peers.”

Schroder MM Diversity has an OCF of 1.25 per cent and is yielding 0.63 per cent.

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