Strategies targeting UK value companies and emerging markets growth, as well as a financial equities-focused fund, are the top picks for FE Trustnet’s journalists during 2019.
Below, editor Gary Jackson, news editor Rob Langston and FE Trustnet Magazine editor Anthony Luzio highlight the three funds they think have the best chance of prospering in 2019. However, it must be pointed out that these are their personal views and should not be taken as investment advice.
Gary Jackson – Baillie Gifford Emerging Markets Growth
“My fund pick for 2018 – Baillie Gifford Emerging Markets Growth – didn't work out too well for me after the whole asset class suffered because of a host of concerns: the US-China trade war, tighter policy from the Federal Reserve, a stronger dollar and the like,” said FE Trustnet editor Gary Jackson.
“Keeping all this in mind, my fund pick for 2019 is... Baillie Gifford Emerging Markets Growth.”
During 2018, the five FE Crown-rated fund lost 10.29 per cent, compared with a fall of 9.27 per cent for the benchmark MSCI Emerging Markets index and a 11.78 per cent loss for the average IA Global Emerging Markets peer.
Performance of fund vs sector & benchmark in 2018
Source: FE Analytics
However, that hasn’t stopped Jackson from backing the fund for the second year running.
He explained: “I own this fund in my portfolio because of its ability to capture market upside over the long term and I see no reason why that still isn't the case, despite its loss in 2018.”
“Of course, if emerging markets as a whole don't rise this year, this fund – which is managed by Richard Sneller and Mike Gush – isn't going to do very well either.
“But (and I know I said this last year) emerging markets do seemed poised to go through a period of outperformance. Relative to developed markets, they look attractively valued and have improving fundamentals.”
The £784.5m Baillie Gifford Emerging Markets Growth fund takes a longer-term, five-year view of markets, but Jackson believes the sector could rally in the near term.
“There really is a lot of bad news priced in emerging market equities and any improvement could see them rally strongly,” said Jackson.
“The dollar, for example, is expected by some analysts to weaken in the coming year and emerging markets would be the most obvious beneficiary of this. Likewise, the US-China trade war hangs heavy over emerging markets but if the US economy starts to slow as expected, will president Donald Trump be willing to continue with his tariffs?”
However, this is not the only reason that the FE Trustnet editor has decided to back the fund again in 2019.
“As mentioned, I own Baillie Gifford Emerging Markets Growth and expect it to do well next year in terms of this little FE Trustnet competition,” he said. “But a more personal battleground is closer to home: I recently revealed that I have put Neptune Emerging Markets in my newborn's portfolio.
“This is much more cyclically-tilted than the Baillie Gifford fund, so it will be interesting to see if myself or my newborn is winning by the end of the year.”
Baillie Gifford Emerging Markets Growth has an ongoing charges figure (OCF) of 0.79 per cent.
Rob Langston – Polar Capital Global Insurance
“After last year’s choice of Standard Life Investments Global Smaller Companies, I’ve opted for something a bit different for 2019,” said FE Trustnet news editor Rob Langston. “Funds in the Investment Association’s Specialist sector can sometimes be overlooked by investors, but there are a number of interesting strategies worth considering.”
“As such, I’ve settled on Polar Capital Global Insurance. This is a fund I’ve long been aware of and its team and strategy are highly regarded by many of the advisers that I speak with.”
The £1.3bn fund, which invests in international insurance companies, is overseen by FE Alpha Manager Nick Martin who has been involved with managing the fund since 2001.
Performance of fund vs sector & benchmark under Martin
Source: FE Analytics
Under Martin, the five FE Crown-rated Polar Capital Global Insurance fund has delivered a total return of 376.43 per cent, compared with an 87.10 per cent gain for the benchmark MSCI World/Insurance index, as the above chart shows.
“Last year’s fund was picked based on conditions in 2018 being much the same as they were in 2017,” said Langston. “I couldn’t have been more wrong.
“But the demand for insurance doesn’t stop during times of economic uncertainty and I think this fund should hopefully see out some of potential challenges facing markets next year.
“However, this not a fund for the cautious investor. It is a highly-regulated sector and the invests in the team tends to invest in small- and medium-sized companies – insurers, reinsurers and insurance support service companies.
“Additionally, this is a concentrated fund of 30-35 stocks and, as such, may be subject to greater single-name risk than broader global equity strategies. Indeed, given the sector focus of the strategy, analysts at FE Invest recommend that it be treated as a satellite investment only.”
Polar Capital Global Insurance has an OCF of 0.88 per cent.
Anthony Luzio – Schroder Recovery
FE Trustnet Magazine editor Anthony Luzio’s fund pick aims to take advantage of opportunities in one of the most unloved areas of the market of recent years: UK equities.
However, there are some that believe that the UK market looking extremely attractive at current valuations and could be due a strong run.
“Merian Global Investors’ Richard Buxton recently recalled a conversation in which he learned one New York-based fund manager said there was not a single company listed in London they thought was worthy of holding in a global portfolio,” said Luzio.
“’This has to be some sort of bell-ringing moment,’ he said. ‘It can only go one way from here.’”
Luzio added: “The lowly valuation of the UK has been one of the dominant themes among fund managers I have spoken to recently and the consensus seems to be the market is pricing in an overly pessimistic scenario over Brexit.
“With value investing beginning to make a long-awaited comeback, I thought Schroder Recovery would be the best option to play a UK rebound.”
The £1.2bn Schroder Recovery fund is overseen by value investors Nick Kirrage and Kevin Murphy and targets companies that have suffered a severe setback in either share price or profitability.
“Managers Kirrage and Murphy begin with a screen highlighting the cheapest 20 per cent of stocks in the market,” explained Luzio. “They then apply a checklist of seven different questions to each stock which leads them to reject 98 per cent of companies recommended by the screen.
“Even though the managers’ style has been out of favour over the past decade, the fund has beaten the FTSE All Share in seven of the past 10 calendar years.”
Performance of fund vs sector & benchmark in 2018
Source: FE Analytics
Under Kirrage and Murphy, who have been with the fund since July 2006, Schroder Recovery has delivered an 183.97 per cent total return, compared with a gain of 97.57 per cent for the FTSE All Share benchmark and a return of 92.46 per cent for its average IA UK All Companies peer.
The fund has a yield of 2.58 per cent and an OCF of 0.91 per cent.