A fund targeting the “depressed” UK market, specialist global mandates and a flexible investment trust are some of the options that balanced investors should consider for 2019.
Yesterday, FE Trustnet revealed the five funds that a panel of investment experts consider to be attractive holdings for more aggressive portfolios while tomorrow we will look at ideas for cautious investors.
In this article, however, we consider potential holdings for those that sit somewhere between the two and are seeking to put together a balanced portfolio for the coming year.
Tilney – Jupiter Income
Tilney Investment Management Services’ Jason Hollands said Jupiter Income could be an interesting option for balanced portfolios. UK equity income funds have long been a core component of many private investors’ portfolios but have recently become “distinctly unloved” as investors avoided UK equities because of Brexit-induced anxieties.
He argued that this is to some degree unwarranted, given the highly international nature of the UK market. However, it means that UK shares are currently trading at a big discount to other developed markets and their longer term trend.
Performance of fund vs sector and index under Whitmore
Source: FE Analytics
“My pick is Jupiter Income, managed by Ben Whitmore, who applies a strong value discipline to choosing stocks. The portfolio is predominantly invested in larger UK companies which include the likes of BP, GlaxoSmithKline, Aviva and Imperial Brands for whom life will go on, whatever the outcome of current political machinations,” Hollands said.
“The UK market remains unrivalled globally for dividends and after recent market falls the UK equity dividend yield has risen to 4.9 per cent which is well ahead inflation and 10-year gilt yields which hover around 1.3 per cent. There is a clearly upside potential for UK share prices from current depressed valuation levels, but in the meantime, well-covered dividends from sound businesses should provide some comfort.”
Between Whitmore taking over the fund in January 2013 and 17 December 2018, it delivered a 67.31 per cent total return – which puts it in the top quartile of the IA UK Equity Income sector. It is also first-quartile over one, three and five years.
Jupiter Income has an ongoing charges figure (OCF) of 0.94 per cent and is yielding 4.10 per cent.
AJ Bell - Newton Global Income
Ryan Hughes, head of active portfolios at AJ Bell, keeps with the income theme but moves over to the international stage by choosing Newton Global Income as his balanced fund pick for 2019.
“Given the uncertainty heading into 2019, focusing on a fund with a proven and repeatable investment process may be a sensible move. The Newton Global Income fund has a simple approach that looks at large companies that offer a dividend yield of 25 per cent greater than the FTSE World index.
Performance of fund vs sector and index under Clay
Source: FE Analytics
“Focusing on high quality, cash-generative companies tends to offer defensive characteristics when markets become volatile but importantly the strategy over time looks to deliver steady long-term returns underpinned by the dividend yield. The fund is tried and tested with manager Nick Clay very experienced which makes this fund a solid core for a balanced investor.”
The investment process behind the fund makes use of Newton’s global thematic framework, which identifies key long-term forces of structural change, such as shifting demographics and a technological revolution, to guide managers’ bottom-up stock selection.
Top holdings in the £5.5bn portfolio include Cisco Systems, PepsiCo, Maxim Integrated Products, Qualcomm and Diageo. Close to 45 per cent of assets are in North American stocks, with 23.2 per cent in Europe and 16.5 per cent in the UK.
Newton Global Income has a 0.79 per cent OCF and is yielding 3.08 per cent.
Hawksmoor Investment Management – Polar Capital Global Convertible
The first of two specialist global portfolios comes from Hawksmoor Investment Management co-head of fund management Ben Conway, who has gone for the $734.7m Polar Capital Global Convertible fund.
“All multi-asset portfolios yearn for something called ‘convexity’ – when markets fall, downside is limited and when they rise, upside is not limited. We try to achieve this by owning a diversified portfolio of cheap assets. But it would be useful if there was a single asset class that possessed this characteristic on its own,” he said.
Performance of fund vs sector since launch
Source: FE Analytics
“Fortunately certain convertible bonds do. The Polar Global Convertible fund only invests in those convertible bonds that are most ‘convex’ It also manages currency and interest rate risk and provides a useful income.”
Convertible bonds are essentially bonds that have an option attached to convert to equity. The option part of the bond is valued just like any other equity option and can rise in value when volatility rises.
Conway said this is a “particularly useful feature” in the current market environment. He added: “Unfortunately the asset class isn’t deep, broad or liquid enough to make up the lion’s share of a multi-asset portfolio, but we think an allocation to this asset class is a must for any balanced portfolio.”
Polar Capital Global Convertible has a 1.14 per cent OCF.
Premier – Lazard Global Equity Franchise
Simon Evan-Cook, senior investment manager for multi asset funds at Premier Asset Management, has another specialist global fund in mind for balanced investors in 2019: Lazard Global Equity Franchise.
“Each market sell-off is different. In some, it’s the worst companies that get walloped the hardest, while in others it’s the most expensive share prices that take the biggest tumble. So, an ideal fund for a balanced portfolio would hold high-quality companies trading at reasonable valuations,” he explained.
Performance of fund vs sector & index since launch
Source: FE Analytics
“That’s pretty much the exact philosophy of the Lazard Global Equity Franchise fund, which is perhaps why it has held up well in the recent turbulence and why we are happy to keep holding it despite more volatile market conditions.”
The $242.9m fund is managed by Bertrand Cliquet, who is a portfolio manager/analyst on the Lazard Global Listed Infrastructure and Global Equity Franchise teams. The portfolio is built around companies that display a combination of predictable earnings and large competitive advantages, with top holdings being IGT, SES and Nielsen.
Lazard Global Equity Franchise has an OCF of 0.90 per cent.
Charles Stanley Direct - RIT Capital Partners
Rob Morgan, pensions & investments analyst at Charles Stanley Direct, said the RIT Capital Partners investment trust could be a good option for those who are “a little anxious about markets but willing to maintain a balanced approach”.
“The portfolio comprises a broad range of assets – a balanced portfolio in a single investment. But it also has a unique edge in certain areas including private equity and specialist third party-managed investments,” Morgan explained.
Performance of fund vs sector & index over 10yrs
Source: FE Analytics
“Around a core of managed equity funds and selected individual stocks, the managers add absolute return and bond strategies, as well as differentiating the portfolio through active currency management, downside protection through derivatives and investments in private companies.
“Coupled with a flexible approach towards controlling the level of risk, this combination of assets results in a diversified portfolio capable of strong returns but with less volatility than the stock market – a goal that resonates with many private investors.”
The £3bn trust has outperformed its average peer in the IT Flexible Investment sector over one, three, five and 10 years.
RIT Capital Partners has ongoing charges of 1.02 per cent, is trading on a 6.9 per cent premium to net asset value and yields 1.7 per cent. It is 20 per cent geared, according to the Association of Investment Companies.