Whilst investors are regularly warned of the danger of falling in love with their funds, there will often be times when they just can’t get enough of their favourite investments.
And this Valentine’s Day, FundCalibre research director Juliet Schooling Latter has highlighted several funds that suit every stage of a relationship.
Everyone loves… Technology and AI
One of the most-loved parts of the market currently is technology and the artificial intelligence (AI), in particular, said Schooling Latter.
“Technology has been leading the stock market charge in recent years,” she explained. “It’s where many of the world’s most innovative and exciting companies can be found and, where it was once a specialist, niche sector, it now touches almost every area of our lives.
“While it can be volatile, long term I think this sector will continue to outperform.”
One fund that plays into the broader technology theme that Schooling Latter believes investors should consider is the £880.7m AXA Framlington Global Technology fund.
Run by Jeremy Gleeson and Tom Riley, the managers take an unconstrained approach to investing giving it the ability “to invest in 'new technology' rather than 'old commodity' companies,”.
Performance of fund vs sector & benchmark over 5yrs
Source: FE Analytics
Over five years, the AXA Framlington Global Technology fund has made a total return of 190.78 per cent, outperforming the average IA Technology & Telecommunications peer (139.97 per cent) but underperforming the MSCI World/Information Technology benchmark (195.06 per cent). The fund has an ongoing charges figure (OCF) of 0.82 per cent.
The AI space is one where “investors have a burgeoning romance”, said Schooling Latter, given the scope for the technology to impact the labour market by increasing efficiency, accuracy and productivity.
“While some see it as a threat, it can actually be used very effectively alongside human employees and, in countries such as Japan, where the working population is decreasing, it can be a welcome solution,” she said.
One fund that Schooling Latter believes is taking advantage of the opportunity is the £272.3m Smith & Williamson Artificial Intelligence fund, which also incorporates AI into its stock picking process.
Managed by Chris Ford and Tim Day the fund has made 80.82 per cent, since launch in 2017. It has an OCF of 0.84 per cent.
Having second thoughts? Renewables and UK equities
Some love stories don’t last, but for investors willing to stick things out for the long-term the relationship might prove fruitful.
One such area is in the renewables space, which got “very popular, very quickly”, after years as an industry “wallflower” for investors seeking income and diversification, according to Schooling Latter.
“However, as central government support has become less necessary and energy farms have become more efficient, power prices have been driven down and the asset class has seen a sell-off in recent weeks,” she noted.
Nevertheless, the FundCalibre research director said renewable energy was a long-term trend and one fund to play it was the £540.7m VT Gravis UK Infrastructure Income fund.
The fund is overseen by William Argent and as well as solar energy also invests in other UK infrastructure assets, such as railways and roads. It targets an annual yield of 5 per cent and invests in equities and can also invest in debt.
The five FE fundinfo Crown rated fund made 41.33 per cent over the past five years. VT Gravis UK Infrastructure Income has a trailing 12-month yield (net of charges) of 4.26 per cent and an OCF of 0.75 per cent.
Another area that might be giving investors second thoughts is UK equities, that have endured an “emotional roller-coaster in recent years”, according to Schooling Latter, given the EU referendum vote of 2016 and subsequent negotiation period of uncertainty.
“While many foreign and domestic investors have dumped our companies, however, their performance has been surprisingly resilient,” said the FundCalibre research head. “In more recent months we’ve had a ‘Boris bounce’ but the market is still cheap and unloved.
“Today could still be a good entry point.”
One fund to consider is the £2.2bn Royal London UK Equity Income manage by Martin Cholwill, who invests at least 80 per cent of the portfolio in medium-sized companies. He aims to outperform the FTSE All Share index over rolling three-year periods and producing a yield higher than that of the index also over rolling three-year periods.
Performance of fund vs sector & benchmark over 5yrs
Source: FE Analytics
The fund has returned 38.90 per cent over the past five years, outperforming both the FTSE All Share index (37.87 per cent) and the IA UK Equity Income peer group (31.77 per cent). It has a yield of 4.33 per cent and an OCF of 0.72 per cent.
Unrequited love: Japan and Europe
And whilst relationships can be rocky, sometimes they’re just one sided.
One such area is Japanese equities.
Although prime minister Shinzo Abe had helped kick-start the economy since coming to power, it has stalled more recently as the third of his so-called ‘arrows’ of Abenomics have not hi the target fast enough for some investors, according to Schooling Latter.
“For no good reason, the stock market lagged its developed market peers last year,” she explained. “However, the combination of lower valuations and improving corporate governance, is a powerful incentive to have faith in this asset class over the long term.”
For investors still in love with Japan, Schooling Latter recommends T. Rowe Price Japanese Equity, run by Archibald Ciganer. The manager invests in a diversified portfolio of Japanese companies, focusing on those going through corporate change, which FundCalibre believe is “well-aligned with Japan’s current economic and political climate” although patience is sometimes required.
Performance of fund vs sector & benchmark over 5yrs
Source: FE Analytics
The €1.5bn, four FE fundinfo Crown rated fund has made 110.76 per cent over the past five years and outperformed the IA Japan peer group, which made 69.41 per cent. T. Rowe Price Japanese Equity has an OCF of 0.86 per cent.
Europe is another of those sectors that has not been loved by others in recent years and has suffered just as much as UK equities throughout the uncertainty of Brexit.
“Investors have taken money out of the asset class consistently over the past few years, choosing to ignore the diversity and opportunities still provided by the 44 country-strong continent,” she said.
“Home to large, successful global brands, as well as plentiful exciting small caps, to me investors are missing out by ignoring our nearest neighbour.”
And the fund they should be looking is BlackRock Continental European Income.
The £1.8bn fund has been managed by Andreas Zoellinger since May 2011 and targets a return on investment over a period of at least five years.
During this time frame it has made 62.58 per cent, outperforming both the average IA Europe Excluding UK peer (55.79 per cent) and the FTSE Developed Europe ex UK index (54.86 per cent). The equity income fund has a yield of 3.58 per cent and an OCF of 0.92 per cent.