Fundsmith Equity, Janus Henderson Strategic Bond and Merian UK Smaller Companies are among five funds that Willis Owen’s Adrian Lowcock said investors could buy, hold and forget about. 
After revealing FundCalibre’s Darius McDermott’s five must-have fund picks, FE Trustnet asked head of personal investing at Willis Owen Adrian Lowcock (pictured) about the open-ended strategies he believes investors can add to their portfolio with a long-term view.
Fundsmith Equity
First up is the popular Fundsmith Equity strategy managed by veteran investor Terry Smith.
In Lowcock’s opinion, the £16.9bn strategy is a highly regarded option for investors seeking exposure to high-quality global equities.
“Terry Smith is an original thinker and has often demonstrated his willingness to bet against the crowd,” said Lowcock.
FE Alpha Manager Smith runs a concentrated portfolio of between 20 to 25 names and looks for companies able to generate sustainable returns of more than 10 per cent on investor capital.
His investment philosophy is to buy and hold, ideally forever, high-quality businesses whose growth is driven from reinvestment of cashflows.
“High-quality companies have little need for leverage, offer an above-average return on capital employed, and an ability to sustainably grow at this rate of return,” noted Lowcock.
“When considering these criteria, and a minimum $2bn market cap to keep the strategy scalable, the result is a concentrated portfolio.”
Performance of fund vs sector & benchmark over 10yrs
Source: FE Analytics
Over 10 years, Fundsmith Equity has delivered a 288.28 per cent total return compared with a gain of 97.81 per cent for the average fund in the IA Global sector and a 141.05 per cent gain for the MSCI World index.
It has an ongoing charges figure (OCF) of 1.05 per cent.
Lindsell Train UK Equity
Another fund that is popular among investors making it onto Lowcock’s list is the LF Lindsell Train UK Equity, overseen by FE Alpha Manager Nick Train.
“Train's process has proved successful across a variety of market conditions,” he explained. “He looks for unique and high-quality companies that offer a high and sustainable return on investment, show low capital intensity, and are cash-generative.
“The result is a concentrated portfolio. Turnover is low, reflecting Train's long-term approach and his buy-and-hold style. He sells out only if he no longer considers a company to be of sufficient quality.
“This process has led to strong performance and, given the strategy has clear biases and risks, unusually consistent relative returns over the medium to longer term.”
Indeed, the five FE Crown rated strategy is up by 288.81 per cent since launch in 2006 compared with a gain of 90 per cent for the average fund in the IA UK All Companies sector and a 91.40 per cent rise in the FTSE All Share.
It has an OCF of 0.70 per cent.
Janus Henderson Strategic Bond
In the fixed income space, Lowcock highlighted Janus Henderson Strategic Bond as a fund that investors could buy, hold and forget about.
The £2bn strategy is overseen by FE Alpha Manager Jenna Barnard and John Pattullo, who Lowcock noted are “talented managers” with a long and solid history of working together.
Barnard and Pattullo employ a flexible and unconstrained strategy looking to add value mostly from asset allocation.
As Lowcock noted, the fund is primarily influenced by their assessment of wider economic and market factors. These are married with specific stock analysis with a healthy regard for valuations.
Although they can invest across the fixed-income spectrum, the team has historically had a bias to corporate bonds.
“The managers have demonstrated an aptitude for analysing the economic cycle and positioning the portfolio accordingly over time, which is key to such a flexible strategy,” said Willis Owen’s Lowcock.
Performance of fund vs sector over 10yrs
Source: FE Analytics
While the average fund in the IA Sterling Strategic Bond sector is up by 87.15 per cent, Janus Henderson Strategic Bond fund has delivered a 106.61 per cent gain over 10 years.
It has an ongoing charges figure (OCF) of 0.69 per cent.
Threadneedle UK Equity Income
Richard Colwell’s Threadneedle UK Equity Income is next with Lowcock highlighting Colwell’s flexibility to invest in both growth and value style ideas to meet his objective of delivering capital returns and a steady income.
“His primary focus is on stock selection and he has a mix of high quality companies, with strong cash generation, and out-of-favour companies with recovery potential, which may not pay a dividend,” he said.
Although Colwell will take significant sector bets against the index following his thematic views, Threadneedle UK Equity Income is unconstrained.
The £3.9bn portfolio is currently mainly invested in large blue-chip companies such as AstraZeneca, GlaxoSmithKline, Morrison Supermarkets, Imperial Brands or Royal Dutch Shell.
Since Colwell took the helm in 2010, Threadneedle UK Equity Income has delivered a 121.26 per cent total return compared with the IA UK Equity Income sector and FTSE All Share index respective gains of 86.29 per cent and 77.95 per cent.
It yields 4 per cent and has an OCF of 0.83 per cent.
Merian UK Smaller Companies
Lowcock’s final pick for investors to consider as a core long-term holding is the £1.2bn Merian UK Smaller Companies, overseen by FE Alpha Manager Daniel Nickols since 2004.
Nickols also heads Merian’s small- and mid-cap team, which Lowcock noted is one of the most highly-regarded teams covering the smaller capitalisation spectrum.
The ability to grow earnings faster than the market average for an extended period of time, the scope to generate a positive surprise or the potential to be re-rated relative to the market are some of the characteristics the companies must demonstrate in order to be considered by Nickols.
“A pragmatic approach is taken to valuation, with various ratios and timescales used depending upon the situation,” explained Lowcock.
“This flexible approach allows growth, value, and recovery companies to be held, but the portfolio has tended to show a growth bias.”
Performance of fund over 10yrs
Source: FE Analytics
Over 10 years, Merian UK Smaller Companies has delivered a 383.82 per cent total return compared with a 328.448 per cent gain for the average fund in the IA UK Smaller Companies sector and a gain of 312.38 per cent for the Numis Smaller Companies excluding Investment Companies benchmark.
It has an ongoing charges figure (OCF) of 1.03 per cent.