17th December 2015
Andy Parsons, head of investment research at The Share Centre, looks back at the performance of his three fund tips from 2015 and identifies three that could thrive in 2016…
2015 has definitely proved a challenging year for investors as strong early gains in many regions and sectors have been wiped out in many instances as we near the year end. To that extent, it is pleasing to report that all three 2015 fund selections have to date, achieved positive returns for 2015.
Leading the way is the CF Miton UK Value Opportunities fund, which has returned c.20% year to date against a broad UK market that has declined. Managed by George Godber & Georgina Hamilton, this is a fund that I believe will continue to reward investors going forward.
The key sectorial theme identified this time last year was around healthcare. Whilst both the Polar Capital Healthcare Opportunities fund & AXA Framlington Healthcare fund have delivered positive returns to date, the sector has suffered from a strong mid-year pull back. Over the longer term, I believe the characteristics and reasons for investing still hold strong.
Looking ahead to 2016, markets are likely to once again remain relatively flat, albeit there will undoubtedly be periods of strong growth followed by sharp corrections. We have just witnessed the Fed raising interest rates for the first time since 2006 and as we see tightening occur in the West, we are continuing to see pressure on Europe and Japan to ease the purse strings further as they battle to stimulate growth.
At the time of writing, the Legg Mason Japan Equity fund has the accolade of being the top performing fund for 2015. The fund seeks to benefit from the economic and structural changes that Japan faces, as the promises and directives of ‘Abenomics’ take hold. The portfolio will vary between 25-60 stocks, with the lower the number clearly indicating the strength and conviction the manager has in those companies.
Around 80% of the portfolio will be seen as core long term holdings, whilst the remaining 20% will be used for more short to medium tactical investments. The fund has the flexibility to invest across the entire market cap spectrum albeit generally focuses on those between £330m and £1bln. Investors should be prepared to accept a higher degree of volatility with this fund, but for those seeking the potential for strong growth, this fund may well be suitable for 2016.
In respect of Europe, the fund I think will do well over the next 12 months is the Schroder European Alpha Income fund. Managed by James Sym, the fund will always adopt a cyclical approach to investing, meaning that as the economy progresses through the phases of recovery, expansion, slowdown and recession, the holdings will be aligned to those which perform strongest within these.
The portfolio will generally hold around between 30-50 stocks, demonstrating the conviction and belief the manager has in his stock selection and with the benefit of quarterly income distributions, this may well appeal to those investors seeking to add diversification to their income streams.
For my final 2016 selection, I’m returning to the UK shorelines and the Liontrust UK Smaller Companies fund co-managed by the highly respected pair of Anthony Cross and Julian Fosh.
The investment process is driven by what they term the ‘Economic Advantage’ process, whereby the managers seek to identify prospective investments, having undertaken a rigorous appraisal against a number of intangible criteria and classify these as tier 1 intellectual capital.
These criteria include such elements as ‘intellectual property’, ’distribution channels’ and ’repeat business’ all of which they believe are the bedrocks to a company’s strength and which competitors will struggle to replicate and therefore naturally create high barriers to entry. Other key intangible strengths they also seek to identify and evaluate are ‘franchises’ and ‘licences’, ‘customer databases & relationships’, ‘procedures and formats’, ‘culture’ and ‘brand’.
Alongside the above, and given the very nature of the market cap spectrum into which the fund faces, the managers will only invest in companies where there is a minimum director ownership of at least 3%. This fund may well be suitable for those investors seeking to add a slightly punchier and riskier UK alternative to a more traditional UK blue chip holding.