While there are plenty of examples of funds that are attracting lots of attention for their strong track records, there are also a number that hold top ratings with FE but appear to still be off professional investors’ radars.
When looking at the research trends of the financial advisers, wealth managers and other professionals that use FE Analytics, well-known funds such as Fundsmith Equity, LF Lindsell Train UK Equity and Vanguard LifeStrategy 60% Equity are often at the very top of the table.
These funds have delivered excellent returns for their investors in recent years and have won top results when it comes to FE Crown and, where appropriate, FE Alpha Manager ratings.
However, they are not the only members of the Investment Association universe to be highly rated.
In this article, we highlight several funds that hold five FE Crowns and have an FE Alpha Manager at the helm but are still being researched less than the average member of their sector.
Marlborough Nano Cap Growth
First up is the Marlborough Nano Cap Growth fund, which is run by Giles Hargreave, David Walton (who both hold FE Alpha Manager status) and Guy Feld. As its name suggests, the portfolio invests in the smallest UK-listed companies, concentrating on those with a market capitalisation below £100m at the time of purchase.
Performance of fund vs sector and index since launch
Source: FE Analytics
Since its launch in October 2013, the £207.9m fund has generated a total return of 91 per cent, which is around 30 percentage points higher than its average IA UK Smaller Companies peer and makes it the 12th best performer of the sector.
Risk management is key to the approach taken by Hargreave and his team of more than a dozen people, which between them have almost 200 years’ experience of investing in smaller companies. This involves running a diverse portfolio of over 150 names, which allows them to manage stock-specific risk and build up positions in winning companies over time.
This means that despite a focus on the smallest of businesses, Marlborough Nano Cap Growth has been less volatile than its average peer since launch (10.65 per cent) and has posted the sector’s lowest maximum loss (-9.15 per cent); this has contributed to its top quartile Sharpe ratio – a measure of risk-adjusted returns – since inception.
Marlborough Nano Cap Growth has an ongoing charges figure (OCF) of 0.80 per cent.
TM Cavendish AIM
A second IA UK Smaller Companies member also stacks up well on FE’s ratings but is being researched less frequently than its average peer: TM Cavendish AIM. This £111.6m fund is headed up by FE Alpha Manager Paul Mumford.
This is another strategy that focuses on a subset of the smaller companies market, this time using the UK Alternative Investment Market (AIM) as its main hunting ground.
Since launch in October 2005 it has beaten its average peer (although this outperformance came quite recently) while outpacing the AIM by a very wide margin with its 262.59 per cent total return.
Performance of fund vs sector and index since launch
Source: FE Analytics
In the fund’s annual return at the end of 2018, Mumford noted that continued volatility in the stock market looks possible but added: “Shares listed on AIM often fall under institutional radar screens and are thus are an area where the greatest opportunities can arise.
“We remain particularly positive about shares in the oil & gas sector and would look for a further re-rating if energy prices remain near current levels. Healthcare companies should continue to be a good area of growth as is opportunities from companies seeking to obtain a listing on AIM.”
TM Cavendish AIM has a 0.84 per cent OCF.
Fidelity Global High Yield
Next up is Peter Khan’s £200.6m Fidelity Global High Yield fund, which has FE Alpha Manager Bryan Collins as deputy alongside Andrei Gorodilov and James Durance. Since its launch in March 2012, it has made a 46.30 per cent total return, putting it in the second quartile of the IA Sterling High Yield sector.
The strategy aims to offer global exposure to the high yield market, with risk being split equally between the US, Europe, Asia, the UK, Latin America, and central and eastern Europe, Middle East & Africa. Around 200 names are held in the portfolio, with the sizing of holdings linked to their weighing in the benchmark.
Performance of fund vs sector and index since launch
Source: FE Analytics
The FE Invest team, which has the fund on its Approved List, said: “The fund differentiates from sector peers by adopting a truly global approach to high yield markets. The dynamics within each market are specific – as such, the managers should be able to benefit from moving their assets from one region to another.
“We also believe they are well supported by the large group of credit analysts at Fidelity. Finally, the fund should provide some diversification benefits to investors who have limited their bond allocation to sterling-based bond markets, while removing the currency risk.”
Fidelity Global High Yield has an OCF of 0.75 per cent and is yielding 3.43 per cent.
Royal London European Corporate Bond
The £94m Royal London European Corporate Bond fund also has a place on this shortlist; it is run by FE Alpha Manager Rachid Semaoune and is second quartile in the IA Global Bonds sector since launch in August 2012 after making 44.61 per cent.
Like other fixed income funds from Royal London Asset Management, the portfolio is managed with a value-orientated approach that aims to exploit the inefficiencies within credit markets, especially within higher yielding bonds that are further down the credit spectrum.
Performance of fund vs sector and index since launch
Source: FE Analytics
In the final quarter of 2018, Semaoune gave an update on the fund saying: “We expect government bond yields to rise over the next 18 months and credit spreads to continue to widen during the remainder of 2018, as the European Central Bank prepares to end its monetary stimulus.
“The fund will continue to maintain a preference for subordinated financial bonds and corporate ‘hybrid’ debt, with a strong preference for short maturities, as we expect these to outperform the broader credit market in a rising yield environment.”
Royal London European Corporate Bond has a 0.35 per cent OCF and is yielding 1.81 per cent.
T. Rowe Price Global Focused Growth Equity
The final fund that holds five FE Crowns and is run by an FE Alpha Manager but is being researched less than its average peer is T. Rowe Price Global Focused Growth Equity. This £64.7m fund is managed by David J. Eiswert.
Its portfolio is built from the best ideas of T. Rowe Price’s global-focused growth equity investment team and has the aim of beating the MSCI AC World index by 3 per cent per annum over the long run. Since launch in May 2017, the fund has made a 26.37 per cent total return – putting it in the top decile of the IA Global sector.
Performance of fund vs sector and index since launch
Source: FE Analytics
Square Mile Investment Consulting & Research, which gives the fund an ‘A’ rating, said: “Given the type of company sought to meet the aggressive performance objective, we believe this fund is perhaps best-suited for investors with an appetite for risk.
“The fund has demonstrated an ability to deliver strong relative performance in rising markets, but this is likely to come at the expense of underperforming the index during times of market stress. Despite this we think investors will be well served over the course of a full market cycle.”
T. Rowe Price Global Focused Growth Equity has an OCF of 0.92 per cent.