Equity income, high yield bonds and specialist strategies looking for ‘economic franchises’ are areas that could be attractive for balanced portfolios as we move into 2018.

That’s according to a number of professional fund pickers FE Trustnet has asked to identify opportunities that balanced investors should consider on the brink of the new year.

Having previously looked at potential funds for cautious investors, we now find out what experts from Whitechurch, BMO, Tilney, Premier and Chelsea are considering for balanced portfolios.

Ben Willis –  Artemis Global Income

We start with Whitechurch Financial Consultants head of research Ben Willis, who has gone with global equity income as his preferred choice picking Artemis Global Income.

Performance of fund vs sector and index since launch

Source: FE Analytics

The fund has outperformed its average peer and benchmark by a significant margin since launch in September 2010; FE Analytics shows the £3.9bn fund is the highest returner of the IA Global Equity Income sector over this period.

Willis said: “Within the recent and current backdrop, Jacob De Tusch-Lec’s fund should not have performed as well as it has given propensity towards value investing. This bodes well for the fund as we move into monetary tightening mode.

“This fund has been relatively contrarian to its peers, providing more exposure to Europe and more volatile regions and sectors, such as emerging markets and financials. De Tusch-Lec is refreshing in that he openly admits that the fund’s growing size means that he has had to adjust his investment process and hold larger stocks and more positions. However, he continues to deliver.”

Artemis Global Income has an ongoing charges figure (OCF) of 0.81 per cent and is yielding 3.54 per cent.

Rob Burdett – MI Chelverton UK Equity Income

Sticking with equity income and BMO Global Asset Management co-head of multi-manager Rob Burdett gives MI Chelverton UK Equity Income as his 2018 balanced fund pick.

“Chelverton UK Equity Income focuses on smaller companies which are still at a discount to larger companies in the main despite their greater potential in our view,” Burdett said.  “The combination of David Horner and David Taylor, two experienced managers with different backgrounds, is a further benefit.”

Horner and Taylor’s approach seeks to arbitrage the discount between the value of a business and its share price, with the aim of growing the dividend by more than inflation over the long term. All of its holdings are outside of the FTSE 100, with Games Workshop, McColl’s Retail Group and XP Power being its top holdings.

FE Analytics shows that the fund is in the IA UK Equity Income sector’s top decile over one, three and five years. In addition, it is the peer group’s highest returner over five years after making a 116.99 per cent total return.

MI Chelverton UK Equity Income has a 0.88 per cent OCF and yields 4.79 per cent.

Jason Hollands – TB Evenlode Income

Jason Hollands, managing director of business development and communications at Tilney, also went for a UK equity income fund after choosing Hugh Yarrow’s five FE Crown-rated TB Evenlode Income fund as his balanced pick.

Performance of fund vs sectors over 5yrs

Source: FE Analytics

“In recent months there have been sizeable outflows from UK Equity Income funds no doubt in part due to current political uncertainties, but in my view this has been excessive, not least because the UK market contains many truly internationally diversified companies and it is also remains the leading market for headline yields,” he said.

“My pick here is the TB Evenlode Income fund which favours ‘asset light’ businesses, those where returns on equity are not dragged down by the wear and tear of replacing significant assets such as plant and machinery, which have robust balance sheets and typically make their earnings from across the globe.

“This investment approach means Evenlode typically have little exposure to both asset-heavy and highly leveraged sectors such as oil and gas, utilities or financials and conversely it leads them to have a strong bias to consumer goods, healthcare, technology and the service sectors.”

TB Evenlode Income has a 0.90 per cent OCF and is yielding 3.30 per cent.

Simon Evan-Cook – Lazard Global Equity Franchise

Premier Asset Management senior multi-asset investment manager Simon Evan-Cook is the first of our experts to look outside of equity income and he opted for the offshore Lazard Global Equity Franchise fund.

The Dublin-domiciled fund is managed by Bertrand Cliquet and only launched in September 2017. The global equity fund builds its portfolio around ‘economic franchises’, which the managers argue have predictable earnings streams, the ability to compound high rates of return for long periods and the ability to protect real returns in inflationary periods.

“The approach of this fund represents a good mix of finding well-run, solid companies that will stay resilient over time, and then making sure their valuation hasn’t risen so far as to make them dangerous investments,” Evan-Cook said.

“It’s a fairly new fund, but it’s run by the same team and under very similar principles to the Lazard Global Listed Infrastructure Equity fund, which has done a fantastic job for us in the past.”

Lazard Global Equity Franchise has a 0.95 per cent OCF.

Darius McDermott – Baillie Gifford High Yield Bond

One fixed income fund was chosen as a potential for balanced portfolios after Chelsea Financial Services managing director Darius McDermott picked the £460.1m Baillie Gifford High Yield Bond fund.

Performance of fund vs sector and index under Baltzer

Source: FE Analytics

“Our broad view on fixed income is that we like it to come with a decent level of yield, given interest rate risk. Baillie Gifford High Yield Bond, which is managed by Robert Baltzer, yields 4 per cent which is comfortably ahead of inflation,” McDermott said.

“As with all Baillie Gifford fixed income funds, the team is not trying to do anything too clever. It's just a case of exercising good old-fashioned due diligence when looking company fundamentals. The fund invests predominantly in UK, US and European high-yield bonds which are held over the long term as part of a concentrated portfolio.”

The approach of the fund is based around the belief that corporate bond markets are inefficient and often fail to reflect all relevant information. Baltzer and co-manager Donald Phillips rely on analysis of companies’ creditworthiness and the characteristics of their individual securities to take advantage of mis-pricings that may have occurred.

Baillie Gifford High Yield Bond has a 0.38 per cent OCF and is yielding 3.90 per cent.