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Four value funds that could benefit from any vaccine rally

16 November 2020

With news of a potential coronavirus vaccine being distributed by Christmas, FundCalibre’s Darius McDermott highlights several funds which could stand to benefit from any bounce in markets.

By Eve Maddock-Jones,

Reporter, Trustnet

News that a potential Covid-19 vaccine could be rolled out in time for Christmas provided markets with some much-needed cheer for value stocks last week.

Companies that have been hardest hit by the pandemic saw performance turn around for the first time in months as news of a Pfizer/BioNTech vaccine with a 90 per cent efficacy broke.

As the below chart shows, the MSCI World Value index is now up by 4.12 per cent over one month, in sterling terms, compared with 1.38 per cent gain for the broad MSCI World benchmark and a 0.94 per cent loss for the growth index.

Performance of style indices over 1mth

 

Source: FE Analytics

While the performance gap between growth and value stocks has opened up for a number of years – as the post-financial crisis era of loose monetary policy has favoured growth companies – and has been exacerbated by the coronavirus.

However, news of a vaccine and the implications of a return to more normalised conditions means good news for the value style.

But it remains to be seen whether it can last.

Darius McDermott, managing director of FundCalibre, said: “The million-dollar question now is whether this value rally will continue or if it will be short-lived.

“If the vaccine news flow remains positive, which I think it will, value could do well now until the end of the year.”

Should the rotation to the value style continue as the vaccine becomes more widespread, McDermott believes there are four funds which could particularly benefit.

Fidelity Special Values

First up is FE fundinfo Alpha Manager Alex Wright’s Fidelity Special Values.

The £760.8m investment trust has been exposed to some of the worst-hit sectors in the Covid-19 crisis. Under contrarian Wright, the UK-focused strategy invests in large-, medium- and smaller-sized companies across a range of different sectors.

Looking for stocks that are out of favour, Wright invests in companies that are able to preserve investor capital and where there is a catalyst for significant earnings growth.

“Although this approach often puts the managers on the opposite side of consensus, they are patient investors and are prepared to wait for stocks to deliver,” FundCalibre analysts noted.

Over the past three years the trust has made a loss of 5.49 per cent, underperforming both the IT UK All Companies sector (2.55 per cent) and the FTSE All Share index which lost 2.16 per cent.

Performance of trust versus sector & index performance over 3yrs

 

Source: FE Analytics

Fidelity Special Values is currently trading at a discount to net asset value (NAV) of 0.1 per cent, is 17 per cent, and has ongoing charges of 0.96 per cent, as at 16 November.

JOHCM Global Opportunities

McDermott’s next pick is the £381.3m JOHCM Global Opportunities fund, which he said has added several “Covid-disrupted structural winners” in recent months.

Co-managed by FE fundinfo Alpha Managers Ben Leyland and Robert Lancastle, the pair aim to buy undervalued high-quality companies set to benefit from long-term trends and themes.

The pair believe that the market consistently underestimates the value crated by well-managed companies in growth niches that reinvest to create sustainable, compounding returns.

Performance of fund versus sector & benchmark over 3yrs

 

Source: FE Analytics

The fund has underperformed both its sector and index over the past three years, making a total return of 18.03 per cent. It has an ongoing charges figure (OCF) of 0.84 per cent.

Ninety One Global Special Situations

Another fund that McDermott thinks could benefit from a vaccine rally is Ninety One Global Special Situations, which he described as “a high conviction, contrarian value fund focused on buying companies that are cheap and out of favour”.

The fund’s managers, Steve Woolley and Alessandro Dicorrado, screen for companies which are “cheap, out-of-favour stocks which have fallen 50 per cent relative to their index,” McDermott said.

Performance of fund versus sector & benchmark over 3yrs

 

Source: FE Analytics

The £206.3m fund has underperformed both its sector and peer group over the past three years, with a loss of 13.51 per cent over the past three years. In contrast its MSCI ACWI benchmark made 28.77 per cent and its IA Global peer group made 28.69 per cent. The fund has an OCF of 0.88 per cent.

Schroder Recovery

McDermott’s final pick is Nick Kirrage and Kevin Murphy’s UK equity strategy, the £668.8m Schroder Recovery fund.

Kirrage and Murphy have managed the fund since 2006 with what McDermott called “a continuity of process and a very consistent track record”.

Performance of fund versus sector & benchmark over 3yrs

 

Source: FE Analytics

Over the past three years, Schroder Recovery has made a loss of 13.87 per cent greater than the IA UK All Companies and FTSE All Share losses. It has an OCF of 0.91 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.