Top managers and industry veterans including Neil Woodford, Jupiter’s Alexander Darwall and Man GLG’s Henry Dixon are among the fund managers for investors to watch in 2018, according to FundCalibre senior fund analyst Tony Yousefian.
Last year was a mixed bag for active managers as the growth trade returned having lagged in the second half of 2016, catching some managers out.
Meanwhile, interest rates rose globally with the Bank of England’s first rate hike coupled with the continuation of monetary tightening by the Federal Reserve.
With the outlook for 2018 muddled, Yousefian outlines the fund managers that are worth keeping an eye on after different fortunes last year.
Neil Woodford, LF Woodford Equity Income
First up is FE Alpha Manager Neil Woodford and his five FE crown-rated LF Woodford Equity Income fund, which had a tough 2017.
The portfolio returned 0.79 per cent over the course of the year while there were double-digit returns for the FTSE All Share benchmark and IA UK Equity Income sector, as the below chart shows.
Performance of fund vs sector and benchmark in 2017
Source: FE Analytics
The fund had a challenging period over the summer when a number of stock-specific issues including a 70 per cent fall for top 10 holding Provident Financial hampered returns.
“Having celebrated the third anniversary of his fund in June at the top of the UK equity income sector, Neil has since had a torrid six months with various stock-specific issues,” Yousefian said.
“All eyes will be on Neil in 2018 to see if he can turn things around. He’s very candid and thinks Brexit will have less of an impact on UK companies than some are saying, but also thinks that equity markets are in bubble territory.”
Woodford has since moved his £8.2bn portfolio into a more value-orientated approach with banks, healthcare stocks and domestic-focused companies added in place of international earners.
“He’s made some big calls before and been proved right and we continue to back him,” the senior fund analyst added.
LF Woodford Equity Income has a yield of 3.5 per cent and an ongoing charges figure (OCF) of 0.75 per cent.
Henry Dixon, Man GLG UK Income
Staying in the UK, FE Alpha Manager Henry Dixon’s £328m Man GLG UK Income fund is another for investors to watch closely.
“This UK equity fund has a value-driven approach – but has managed to consistently outperform over the past few years, even though the style has been very much out of favour,” Yousefian said.
Last year the fund was the top performer in the IA UK Equity Income sector, returning 27.55 per cent – more than double the FTSE All Share – after a difficult 2016.
The analyst added: “It invests predominantly in UK companies of all sizes, but can also invest in continental European companies which derive a substantial part of their revenues from the UK.
“It also has the ability to invest up to 20 per cent in corporate bonds – a flexibility that sets it apart from the majority of its peers.
“This fund has performed exceptionally well since Henry took over in 2013 and has a yield of 4 per cent too. If value comes back in to favour, it could do even better.”
The four FE Crown-rated Man GLG UK Income fund has an OCF of 0.9 per cent.
Alexander Darwall, Jupiter European
Moving (slightly) further afield, Alexander Darwall’s five crown-rated Jupiter European fund is another on Yousefian’s watch list.
The £4.8bn fund had another strong year in 2017, returning 27.71 per cent – the second-best performance in the IA Europe ex UK sector.
Performance of fund vs sector and benchmark in 2017
Source: FE Analytics
It was the fund’s third top-five ranking in the sector in the last four calendar years and it returned more than 10 percentage points above the sector and FTSE World Europe ex UK benchmark in 2017.
However, Jupiter European is heavily growth-orientated and struggled in 2016 as the value trade came back into fashion, returning 5.19 per cent versus the benchmark’s 19.69 per cent.
“Another equity market we like is Europe. It has lagged the UK and US in terms of economic recovery, and it wasn’t until 2017 that the economy started showing signs of health,” Yousefian said.
“It’s a vast continent and there are many world-leading companies. This fund was our second most viewed on the website in 2017 – not bad considering the asset class is unloved by UK investors.”
“Should they choose to invest in 2018, this fund’s popularity among fund researchers should bode well,” he added.
Jupiter European has a yield of 0.4 per cent and an OCF of 1.03 per cent.
Matthew Brett, Baillie Gifford Japanese
The remaining equity manager on the list is Baillie Gifford’s Matthew Brett, who has co-managed the Baillie Gifford Japanese alongside the departing Sarah Whitley since 2008 but will be taking over the reigns as lead manager in April.
“Sarah Whitley, who currently heads up Baillie Gifford’s Japan team, is retiring in April after 37 years in the job and Matthew will be taking on management of Baillie Gifford Japan Trust too. We don’t think he’ll have a problem stepping into her shoes,” Yousefian said.
Since Brett was named as co-manager on the four crown-rated fund it has returned 211.95 per cent – the fourth-highest returns in the IA Japan sector over the period – and had another strong year in 2017.
Unlike many funds that outperformed in 2017, Baillie Gifford Japanese had also done well in the previous year; it was the strongest performer in the sector in 2016 and made a top quartile return of 26.56 per cent in 2017.
Performance of fund vs sector and benchmark in 2018
Source: FE Analytics
“Japan is one of the few equity markets where we still see value. The stock market has had a great run, but it still some 40 per cent off its long-term peak,” Yousefian said.
“Shinzo Abe has recently won a snap election and maintained his super-majority, giving him a fresh, supported mandated to continue with his reforms. With global growth looking healthy, we think there are some exciting opportunities to be found.”
The £2.3bn Baillie Gifford Japanese fund has a yield of 0.72 per cent and an OCF of 0.63 per cent.
Stuart Steven, Liontrust Monthly Income Bond
The only non-equity manager to watch out for this year is Stuart Steven, co-manager of the £275m Liontrust Monthly Income Bond fund.
The portfolio was the second-best performer in the IA Sterling Corporate Bond sector last year, returning 8.87 per cent and since launch in 2010 has been a top quartile fund.
“Since its launch in 2010, this fund has been invested mainly in short-dated bonds to decrease its sensitivity to interest rates rise,” Yousefian noted.
“Despite this, it has still managed to outperform and produce a decent yield (currently 5.5 per cent). It has the flexibility to invest in longer dated bonds as and when rates normalise. As monetary policy is reversed, it should come into its own.”
Liontrust Monthly Income Bond has a yield of 5.56 per cent and an OCF of 0.64 per cent.