Brown Shipley’s Simon Nicholas (pictured) says his firm has been increasing its weighting to more cyclical areas, but is continuing to hold short-dated bonds to protect on the downside. He highlights five funds that he is backing for current markets.
Neptune European Opportunities
Nicholas says the economic picture is starting to look brighter in debt-strapped Europe, which is why his team has upped its exposure to the region through the £613.5m Neptune European Opportunities fund.
"In our IFDS Brown Shipley Multi Manager Growth fund, we’ve been building a position in Neptune European Opportunities," Nicholas said.
"The fund is positioned for recovery in Europe, with a cyclical slant to the portfolio and a significant weighting to financials. The economic news appears to be getting less bad in Europe, with an improvement in the PMI (purchasing managers index), and fund performance is responding to this."
Neptune European Opportunities, run by FE Alpha Manager Rob Burnett, has had a tough time relative to its sector and index in the medium-term, consistently delivering bottom-quartile numbers.
However, the fund has performed well in the volatility of this summer, picking up 10.45 per cent over the last three months, compared with 6.35 per cent from the IMA Europe ex UK sector and 4.12 per cent from the MSCI Europe index.
As Nicholas points out, the fund is tilted towards financials, with a 30.7 per cent allocation to the sector.
Neptune European Opportunities requires a minimum investment of £1,000 and has ongoing charges of 1.82 per cent.
Lindsell Train UK Equity
Nicholas says the team recently rebalanced its model portfolios and added holdings in the five crown-rated Lindsell Train UK Equity fund across the range.
"This is a fund we introduced across our discretionary portfolios. It is focused on companies with sustainable above-average returns on equity," he said.
"The manager invests in companies with above-average profit margins and that are characterised by strong brands and business franchises."
The £652.8m fund, managed by FE Alpha Manager Nick Train, has smashed the performance of the IMA UK All Companies sector and FTSE All Share over one, three and five years.
It has nearly tripled the returns of the sector and index over the longer period, picking up 171.49 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund is yielding 2.53 per cent.
Lindsell Train UK Equity requires a steep minimum investment, but is available to retail investors via platforms.
GLG Japan Core Alpha
After numerous false dawns, sentiment is finally beginning to tilt in favour of Japan, which has been the leader in the equity rally so far this year.
Nicholas thinks the east Asian country can continue to outperform and is backing the £1.1bn GLG Japan Core Alpha fund in his portfolios.
"Earlier this year, we increased exposure to Japanese equities at asset-allocation level across client portfolios. One fund we’ve used to take this exposure is GLG Japan Core Alpha," he said.
"We have used the hedged-back-to-sterling version of this fund in order to protect the market returns to clients from any devaluation effect of a weakening yen."
The fund, run by FE Alpha Manager Stephen Harker, has outperformed the IMA Japan sector and Tokyo Topix index over one, five and 10 years. It has lagged behind over three years but has continued to deliver stellar outperformance in the short-term.
Over the last five years, the fund has made 76.04 per cent, compared with 52.64 per cent from the sector and 48.43 per cent from the index. So far this year, it has picked up an impressive 37.56 per cent, according to FE Analytics.
GLG Japan Core Alpha requires a minimum investment of £1,000 and has ongoing charges of 1.66 per cent.
Muzinich Enhancedyield Short Term
Brown Shipley is not abandoning fixed income despite the recent rise in government bond yields, preferring instead to keep a diversified portfolio to protect against sharp downward movements in equities.
"Historically low interest rates and bond yields have meant we must consider a return to interest rate normalisation at some point," said Nicholas.
"We have therefore introduced bond fund strategies that will act more defensively in that environment, like the Muzinich Enhancedyield Short Term fund."
"This is a short-duration fund, predominantly invested in European investment grade bonds, with around a third of its exposure in high yield. We use the hedged-back-to-sterling class for our UK investor base and our IFDS Brown Shipley Multi Manager Income fund."
The Dublin-domiciled mutual fund has five FE Crowns to its name and is yielding roughly 2.8 per cent.
Over the last five years, the fund has made 47.54 per cent. As a point of comparison, the IMA Sterling Corporate Bond sector has made 36.5 per cent.
This fund is only accessible to professional investors or through a discretionary model.
M&G Global Macro Bond
Along the lines of the defensive bond theme, Nicholas says his group has recently added the M&G Global Macro Bond fund to its recommended list.
"This is a go-anywhere bond fund managed by M&G’s head of fixed interest, Jim Leaviss. The fund currently has a short duration and is 85 per cent exposed to the US dollar from a currency perspective."
The five crown-rated fund is yielding 0.86 per cent and has beaten the IMA Global Bonds sector average over one, three, five and 10 years.
Over the last decade, the fund has gained 94.61 per cent while the sector has made 64.04 per cent.
Leaviss is invested in a series of government bonds, including the US, Germany, Norway and Sweden. The fund is tilted toward financials, at 26.5 per cent.
It requires a minimum investment of £500 and has ongoing charges of 1.41 per cent.
