While some commentators have been predicting the end of the post-crisis bull run in markets for a long time now, there have been few signs that it is about to run out of steam imminently.
As such, Trustnet decided to ask its panel of advisers which funds they think aggressive investors should consider adding to their portfolios for 2020.
First State Asia Focus
Martin Lau’s First State Asia Focus fund should benefit from any easing of tensions between the US and China over trade and any potential upside in Asian equity markets, according to Bestinvest managing director Jason Hollands.
“Asian equities are relatively cheap in a global context and there is scope for central banks to further ease policy,” Hollands explained. “First State Asia Focus focuses on larger companies with strong corporate governance and healthy balance sheets.
“The manager has a something of an absolute return mindset and takes a prudent approach to the balanced between risk/return.”
The £733.4m pan-Asian fund is currently holding a considerable underweight in China compared to the benchmark and has more than double the benchmark’s exposure to India, its largest geographic weighting.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Making a total return of 44.73 per cent over the past three years (to 17 December), First State Asia Focus outperformed both the MSCI AC Asia Pacific ex Japan index, which is up by 31.91 per cent and the IA Asia Pacific Excluding Japan peer group’s 28.12 per cent.
It achieved this outperformance with lower annualised volatility (9.77 per cent) than the index (11.20 per cent) over the period. It has an ongoing charges figure (OCF) 0.90 per cent.
Smith & Williamson Artificial Intelligence
Artificial intelligence has become increasingly incorporated into everyday life and is one area that The Share Centre’s head of investments Andy Parsons believes there is a good opportunity for aggressive investors next year.
As such, Parsons has opted for the £223.1m Smith & Williamson Artificial Intelligence fund, which was launched in 2017 and is managed by Chris Ford and Tim Day.
Parsons said Ford and Day’s stock selection process is enhanced by a proprietary AI system, which helps identify those companies using or developing artificially intelligent systems.
“This fund differs from traditional global technology funds as it is not bound by sectors, giving exposure to both defensive sectors such as healthcare and cyclicals such as industrials,” he explained.
Being able to invest globally outside of the US gives the strategy another layer of differentiation than its peers, according to Parsons.
However, being such a specialist strategy does entail a higher degree of risk and can be seen in the fund’s maximum drawdown figure – the most and investor would have lost if they bought and sold the fund at the worst possible moment - which over three years was 12.01 per cent. Additionally, it had high volatility of 18.72 per cent.
Performance of fund since launch
Source: FE Analytics
The fund has made
Nevertheless, the fund has made an impressive return since launch of 58.97 per cent. The fund has an OCF of 0.84 per cent.
Merian UK Smaller Companies
Backing UK smaller companies has been a brave decision over the past couple of years, but with a significant Conservative majority now in place and greater clarity over Brexit their time might now have arrived.
Adrian Lowcock, head of personal investing at Willis Owen, has chosen Merian UK Smaller Companies overseen by Alpha Manager Daniel Nickols and “one of the most highly regarded small- and mid-cap teams”.
“Companies must demonstrate one or more of the following characteristics: 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,” said Lowcock.
“A pragmatic approach is taken to valuation, with various ratios and timescales used depending upon the situation. 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 vs sector & benchmark over 3yrs
Source: FE Analytics
Generating returns 47.39 per cent over the past three years, the £1.3bn fund outperformed both the IA UK Smaller Companies sector (39.35 per cent) and the Numis Smaller Companies Excluding Investment Companies benchmark (25.95 per cent). However, this has come with bottom quartile volatility and maximum drawdown figures. It has an OCF of 1.03 per cent.
Man GLG Continental European Growth
Next up is Rory Powe’s Man GLG Continental European Growth fund which GDIM Discretionary Fund Managers’ Tom Sparke said has been a “stellar performer” over a range of different time frames.
Sparke said Powe’s focus on high quality companies with strong growth trajectories should serve it well next year.
“Powe selects the portfolio on a number of strict criteria and splits his portfolio into ‘Established Leaders’ and ‘Emerging Winners’,” he said.
“The former are very high quality holdings often in niche industries or produce luxury goods and many have strong cashflows from China. The smaller end of the portfolio involves dynamic secular growth stocks, which could provide some much-needed firepower to portfolios next year.”
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Man GLG Continental European Growth has outperformed both the sector and the index over the past three years, making 41.05 per cent over that time frame, outperforming the FTSE Europe ex UK index (28.88 per cent), IA Europe Excluding UK sector (25.94 per cent).
But like the Merian fund it has exhibited greater volatility and a higher maximum drawdown of 20.32 per cent compared with a 12.43 per cent loss for the index 12.43 per cent. It has an OCF of 0.90 per cent.
Schroder Global Recovery
Going into an unfavoured style rather than an unloved geography, Andrew Lyddon, Nick Kirrage and Simon Adler’s Schroder Global Recovery fund focuses on the value investment trend, and has been selected by AJ Bell’s head of active portfolios, Ryan Hughes.
Value has been out-of-favour for much of the past decade as the market environment has favoured growth stocks, as the below chart shows.
Performance of style indices over 10yrs
Source: FE Analytics
But following a rally more recently, some investors have started to ask whether the end could be nigh for outperformance of growth.
Hughes said: “The last couple of months have started to show a small turnaround and this certainly has the ability to continue through 2020, particularly if we see a steepening of the yield curve.
“Valuations of value stocks have certainly become very cheap on a P/E [price-to-earnings] basis with some solid businesses now sitting on a P/E ratio of less than 10.”
Hughes said the disciplined approach and years of experience could benefit the Schroders fund.
“Importantly,” Hughes added “the managers are comfortable investing away from the benchmark and while performance has been underwhelming, should value come back into favour, they are very well poised to benefit.”
The £249.9m fund made a return of 20.88 per cent over the past three years compared with a gain of 33.52 per cent for the MSCI World benchmark and 30.93 per cent return for the IA Global. It has an OCF of 0.96 per cent.