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Professionals focus attention on one UK contrarian fund in November

03 December 2018

FE Trustnet finds out which funds were being researched more heavily by professional investors during November, spotting an increase in attention on the UK.

By Gary Jackson,

Editor, FE Trustnet

Investors spent more time researching the IA UK All Companies sector last month, according to FE Trustnet analysis, although this significant swing was largely down to a substantial jump in interest for one fund.

Investors have avoided UK equities for much of the recent past, owing to concerns over the country’s plans to exit the European Union, a degree of political uncertainty and lacklustre economic numbers.

Data from the Investment Association shows the IA UK All Companies sector has been hit with net outflows for at least 13 months running, with more than £2.6bn flowing out of the sector over the last six months alone.

In keeping with the start of every month, we have reviewed the recent research activity of the financial advisers, discretionary fund managers and other professional investors that use FE Analytics to identify changes between November and the previous 12 months.

 

Source: FE Analytics Market Intel Tool

As the chart above shows, IA UK All Companies is the sector that captured the biggest increase in research attention last month.

Over the previous 12 months, some 10.48 per cent of all research in the Investment Association universe was on the sector’s members but this climbed to 11.51 per cent in November; as we will see, this was driven by a jump in research on one well-known value fund.

Continued attention on the monetary policy of the world’s central banks, especially the Federal Reserve’s rate-hiking programme, was a contributing factor in IA Global Bonds seeing the second largest increase in research. Templeton Global BondM&G Global Macro Bond and Natixis Loomis Sayles Multi Sector Income were its three most popular members in November.

However, interest appeared to fall in two multi-asset sectors – IA Flexible Investment and IA Mixed Investment 20-60% Shares – while the professionals spent less time on the IA Global sector, reflecting the volatility still affecting world equity markets.


Turning to individual funds, the biggest move has come from FE Alpha Manager Alex Wright’s Fidelity Special Situations fund. This £3bn fund has moved from being the 66th most viewed fund in the previous 12 months to being the most researched in November, replacing Fundsmith Equity at the top of the table.

The fund is one of the best known in the UK market, building a strong track record on the back of a contrarian approach that sees it hunt for undervalued stocks that other investors might be overlooking. Since Wright took over the portfolio at the start of 2014, Fidelity Special Situations has generated a top-quartile total return of 36.77 per cent, compared with 25.08 per cent from its average IA UK All Companies peer and 27.88 per cent from the FTSE All Share.

Although UK equities have been avoided by many investors since the Brexit referendum, Wright recently argued that this pessimism could mean they are poised to be one of the best performing areas of the market in 2019.

 

Source: FE Analytics Market Intel Tool

“The unrelenting negativity that investors are demonstrating towards UK equities is making me feel more and more positive on their prospects for 2019,” he said.

“One thing I have learned from investing in unloved companies is that you shouldn’t necessarily wait for good news to become obvious before investing. By investing when all the bad news is ‘in the price’ and no good news is expected at all, you put the odds in your favour. I think this is a situation we are in in the UK at the moment.

“The number of unloved companies available to choose from now makes me think 2019 could turn into a surprisingly positive year for investors brave enough to buy UK equities before the good news.”


As the table above shows, Aberdeen Asia Pacific Equity Enhanced Index was the fund that saw the second largest increase in research through FE Analytics during November. The £169.8m fund uses a quant-based strategy that focuses on ‘factor premia’, or stock characteristics shown to be persistent drivers of excess return such as value, quality, momentum and low volatility.

In third place is Liontrust Special Situations, which is run by the FE Alpha Manager duo of Anthony Cross and Julian Fosh. The five FE Crown-rated fund is top decile in the IA UK All Companies sector over one, three and five years thanks to the managers’ Economic Advantage process, which looks for companies with characteristics such as intellectual property, strong distribution channels and significant recurring business.

Vanguard LifeStrategy 60% Equity came in fourth place. This is a member of Vanguard’s popular LifeStrategy range, which is a suite of multi-asset portfolios built from underlying Vanguard trackers, and is currently top quartile in the IA Mixed Investment 40-85% Shares sector over one, three and five year.

And in fifth place we have FE Alpha Manager Keith Ashworth-Lord’s £516.9m CFP SDL UK Buffettology fund. Ashworth-Lord uses the ‘business perspective’ investment style established by Warren Buffett and Ben Graham; the FE Invest team said: “The patient, concentrated approach is one the managers share with some of the most successful of their peers in the UK and abroad, and could suit investors looking for a genuinely active fund that can outperform the UK market.”

 

Source: FE Analytics Market Intel Tool

The above table reveals the Investment Association funds with the largest falls in research share during November.

It’s another month when Jupiter European saw the largest fall in interest but, once again, this is due to the spike in interest that the fund benefitted from at the end of 2017 and its tailing off to more typical levels of research. FE Analytics shows the fund is in the top three performers of the IA European ex UK sector over one, three and five years.

Six funds run by Aberdeen Standard Investments are found on the list of those seeing less research, as are two each from Fidelity and Threadneedle.

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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.