Unicorn UK Income
In the popular UK Equity Income space, Mayo likes the five crown-rated Unicorn UK Income fund, headed up by FE Alpha Manager John McClure.
The £158.9m fund has topped the performance tables over three and five years, and is one of the best-performing funds in the sector over the last 12 months, according to FE Analytics.
Since launch in May 2004, Unicorn UK Income has gained 191.97 per cent, beating both the sector and the FTSE All Share, which made 102.93 per cent and 116.4 per cent respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
"The fund invests in small and mid-size dividend-paying companies," Mayo said.
"Despite being in the UK Equity Income sector, we particularly like the manager’s ability to generate capital appreciation, which has been the key driver behind the fund’s outperformance over the last few years."
"The investment process is clear and robust and the manager has the ability to be truly nimble in the small cap space, due to the fund’s size."
As Mayo mentioned, the fund looks outside the standard blue chip income-payers in the UK and instead backs small- and medium-sized companies such as Cineworld, electronics and maintenance products distributor Electrocomponents and construction firm Interserve.
The highest sector weighting is in services, at 30.7 per cent.
The fund requires a minimum investment of £2,500 and has a total expense ratio (TER) of 1.59 per cent.
Royal London Corporate Bond
Bonds have been a veritable yield desert in recent months, after a long period of record gains, but Mayo says there is still a place for corporate fixed income in investors' portfolios.
For this area he tips the four crown-rated Royal London Corporate Bond fund.
"We added this fund to increase our exposure to quality investment grade corporates," Mayo said.
"The fund has an above-average yield and has delivered consistently strong performance with less volatility over one, three and five years versus its peers."
The £512.3m fund has a yield of 4.22 per cent, one of the highest in the sector, and has outperformed the average fund over one, three, five and 10 years.
However, it has underperformed the iBoxx Sterling Non-Gilts All Maturities index over five and 10 years.
Over the last three years, the fund has gained 31.14 per cent, compared with 24.47 per cent and 28.25 per cent from the sector and index respectively.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Manager Jonathan Platt is backing short-dated gilts alongside debt from Lloyds, RBS and Imperial Tobacco. The two largest weightings in the fund are to banks and structured products, at 21.8 per cent each.
The fund requires a minimum investment of £1,000 and has low ongoing charges of just 0.94 per cent.
JOHCM Emerging Markets
After a recent swathe of soft-closures in the emerging markets space, investors are undoubtedly in search of an alternative to the giants.
Mayo tips the comparatively tiny JOHCM Emerging Markets fund as a strong bet in the sector and an ideal way for investors to diversify their portfolios.
"The fund is one of our favoured picks in the emerging markets space. It has been a good diversifier in our portfolios and offers a different approach to mainstream emerging market funds," he said.
"The managers' flexible all-cap growth style, coupled with an improving economic outlook in emerging markets, has been supportive of the fund’s performance."
The £119.5m fund is top-quartile over one and three years, beating both the IMA Global Emerging Markets sector and MSCI Emerging Markets index over each period.
Since launch in April 2010, the fund has gained 13.03 per cent while the sector has made 7.56 per cent. The MSCI Emerging Markets index has gained 8.15 per cent in this time, according to FE Analytics.
Performance of fund vs sector and index since launch
Source: FE Analytics
As evidenced in the chart, the fund is not without volatility; however, its score is in line with both the sector and index at roughly 17 per cent over three years.
The fund is managed by Emery Brewer and Ivo Kovachev.
Samsung Electronics, Taiwan Semiconductor and Petrobras Argentina are staples in the portfolio.
The highest sector bets are to consumer products and financials, at 26 per cent and 25.3 per cent. The majority of the emerging markets portfolio is invested in the Pacific Basin followed by the Americas.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.8 per cent, excluding performance fee.
