While investors are largely steering clear of UK, Japan and value stocks currently, Premier Asset Management’s Simon Evan-Cook said these are where the best opportunities are to be found. 
The uncertainty surrounding Brexit, the bursting of Japan’s 1990s asset bubble and its subsequent recession, and the underperformance of value stocks over the past decade are responsible for negative sentiment to these areas.
“But,” said portfolio manager Evan-Cook (pictured), “if you could only invest in two markets globally, Japan and the UK both look like really good bets because you’re getting a mix of good valuation and reasonably sound political risk.”
It’s a mistake to avoid the UK market, said the Premier manager, given that it continues to offer investors a yield of around 4 per cent and healthy dividend growth.
“I think if you put that on paper and offered it to most people [saying that] you can have a fixed income of 0.77 per cent per year for the next 10 years, which is what gilts are offering you.
“Or you can have four plus per cent that will grow to five to six per cent per year, most people would bite your hand off for the second one, which is what the UK [market] is offering.”
Within the UK, Evan-Cook is looking more closely at the micro-cap space in the fund-of-funds strategies that he oversees, Premier Multi-Asset Global Growth fund and Premier Multi-Asset Growth & Income.
“We’re going to do something different and we’re going to ignore the crowd,” he said. “If we think that the crowd is acting like a crowd of lemmings and they’re all just following each other over the cliff, we won’t.”
Yet, Evan-Cook himself admits that this is a somewhat controversial area to put his investment into.
“Which makes it very tough if you’ve got to explain your decision to a client specifically,” he explained. “But I think the advantage of running a fund-of-funds is we can look at that type of opportunity and say ‘yes’ as part of a portfolio and a modest partnership value.”
One such strategy that Evan-Cook likes is the MI Downing UK Micro-Cap Growth fund, managed by Judith MacKenzie.
Performance of fund vs sector over 1yr
Source: FE Analytics
Evan-Cook said this fund was one of the worst performers in his portfolio over the last year, having made a loss of 14.89 per cent. Nevertheless, Evan-Cook said that it will outperform should the UK outlook change and Brexit be resolved.
“When you speak to the manager, the value she [sees] within the stocks of that fund [is] highly compelling,” he said. “And on a 10-year view, it only takes a handful of those stocks to even remotely do well and that fund is going to make some very exciting returns. But nobody’s interested because it’s got a poor-looking track record in an area that everyone hates.
“But, again, if you just dig underneath the hood it’s just mind-blowingly good value. And all it takes is for everything to be ok.”
It is the same story with Japan according to Evan-Cook where he is focusing his portfolio on a mixture of quality-growth and value assets.
“If you speak to a value manager in Japan or a small cap value manager in the UK they’re scratching their heads and saying ‘this is stuff is great’,” he said.
Evan-Cook looks for funds providing “steady non-correlated – almost bond-like – returns but without that correlation to bonds or to equites”.
An example of a quality growth holding held by Evan-Cook is Alpha Manager Michael Lindsell’s Lindsell Train Japanese Equity fund. The £472m five Crown-rated fund has been part of his portfolio for eight years and he said he doesn’t plan on changing that.
“Everybody knows what Lindsell Train do and the type of companies they’re invested in,” said Evan-Cook. “They’ve done a fantastic job.”
Performance of fund vs sector over 3yrs
Source: FE Analytics
Getting into the value side, Evan-Cook highlighted the four Crown-rated Man GLG Japan Core Alpha fund – managed by Neil Edwards, Stephen Harker, Jeff Atherton and Adrian Edwards – as a favourite.
“The type of funds that I particularly like are [those] that are very much bottom-up and stock-specific driven,” he said.
Looking back at the Premier Multi-Asset Global Growth fund and Premier Multi-Asset Growth & Income funds he oversees, however, Evan-Cook said that he has not enjoyed the past 18 months at all.
“When we look at the mix of funds we’ve got there, I think we’ve got funds that are very well positioned to do well in most conditions,” he said. “Other than the conditions we’ve seen for the last 18 months, which hopefully are on their last legs.
Performance of funds over the past 18mths
Source: FE Analytics
“The way we invest is we have a lot of exposure for the styles that we like, like value and quality-growth and we’ve had kind of a mix between those styles over the last 10 years,” Evan-Cook said.
“At the start of that 10 years we had more in quality-growth and that was a great benefit to us.
“But then as quality growth as re-rated and value de-rated, we’ve shifted across and that has worked well except for the last 18 months.”
With a “hyperdrive” surge in the popularity of US growth stocks, August was an especially hard month for his funds, according to Evan-Cook, who typically deviates away from what investors fall into.
What it means though is that when the “elastic pings back” on those trends then the funds will be in a “pretty good position”.
“And that’s what we’ve seen in the last couple of months, as we’ve seen that spring back quite dramatically,” he explained. “We’ve seen our performance swing back reasonably dramatically as well.
“So, it’s reassuring,” he concluded. I can’t say that’s for the long-term, but if that gives you a taster of what could happen then you can see that we’re well-positioned. And what that [also] tells you is the peer group is positioned largely for what has happened.”
Over the past three years, Premier Multi-Asset Global Growth has made a total return of 21.83 per cent, while Premier Multi-Asset Growth & Income was up by 19.74 per cent.
Premier Multi-Asset Global Growth has an ongoing charges figure (OCF) of 1.59 per cent, while Premier Multi-Asset Growth & Income has an OCF of 1.54 per cent and a yield of 2.68 per cent.