It’s fair to say that this has been one of the quietist weeks of 2015, a year which has been jammed pack full of price swings and macro news, for financial journalists. 
Many may feel that we are in the calm before the storm with interest rates expected to rise in the US next month while others may well be positioning for a so-called ‘Santa rally’.
Either way, the major talking points of the week have not been investment based at all as the world is still reeling from the Paris terrorist attacks last Friday. As was to be expected, the atrocities caused a brief period of volatility in equity markets on Monday but they have since recovered their gains.
Bond yields have once again fallen despite the US Federal Reserve’s upcoming meeting.
Despite the lack of finance news, we at FE Trustnet have had an interesting week of research-based articles courteous of our access to FE Analytics and the shed-load of data it provides us with. Here we highlight five of our favourites.
From all of us here at FE Trustnet, have a cracking weekend.
Richard Buxton v Alastair Mundy: Which UK value manager offers the better opportunity?
We start off with a fund battle.
Senior reporter Daniel Lanyon looked at two of the most popular UK value managers this week –Alastair Mundy and Richard Buxton – and posed the question of whether either offer a decent opportunity considering recent underperformance.
Both Mundy and Buxton still have track records of outperformance but have had a torrid 2015, in part at least due to value being broadly out of favour within the UK equity market.
According to FE Analytics, growth stocks have been rallying since October 2014 while value has been falling within the UK equity market.
Performance of indices over 2yrs
Source: FE Analytics
Both funds sit in the bottom decile of the IA UK All Companies sector in 2015, having lost 5.58 per cent and 4.06 per cent while the FTSE All Share has fallen just 1.15 per cent and the average fund in the sector has returned 1.83 per cent.
Click through to see what the experts think of the potential for recovery in these two portfolios.
Why Sebastian Lyon will be bullish amid looming market “apathy and despair”
Troy Asset Management’s Sebastian Lyon says that investors in his £2.5bn Trojan fund should not expect its very cautious stance to last forever, as he is prepared to take a much more bullish stance in the event of significant market correction.
The fund, which bases its portfolio on blue-chip equities, index-linked bonds, gold and cash, is lagging its average peer and its FTSE All Share benchmark over three and five years but is first quartile over three and six months after holding up well in the recent market turmoil.
Lyon expects these difficult market conditions to continue as we move into the new year but says that a sustained correction could mark the end of the “secular bear market” he believes has afflicted equities since the start of the millennium.
“As we head towards 2016, the potential for further shocks and greater volatility should not be ruled out. The market’s twin props of cheap debt and stable corporate earnings look vulnerable,” he said.
“The best investments are made during apathy and despair – not ebullience and complacency. We are preparing for being far more invested than in the past decade or so. In 2008, many expressed reservations as we bought into a collapsing market but fundamental value was evident back then, even in great companies.”
“Those opportunities will come again. As we head into more challenging conditions, do not be surprised if we become bullish.”
Five funds for a market collapse
The well-known headwinds in markets have led to plenty of investors erring on the side of caution and because of this, we asked a panel of five fund managers, analysts and DFMs for their top ultra-defensive fund picks.
Stephen Peters, investment analyst at Charles Stanley, opted for FE Alpha Manager Iain Stewart’s Newton Real Return fund, which sits in the IA Targeted Absolute Return sector and is one of the most popular defensive vehicles on the market.
“The manager's 20-year experience in managing multi-asset portfolios has been crucial in navigating through the capital market volatility witnessed in recent years,” Peters explained.
Another pick within the sector was Old Mutual Global Equity Absolute Return, as chosen by Apollo’s Ryan Hughes, which has a 2.5 per cent weighting in the Apollo Balanced fund and a 4.25 per cent weighting in the Apollo Cautious fund.
“This fund is run on a market neutral basis therefore taking away any directional bias towards equities which gives it strong downside protection in falling equity markets,” Hughes said.
Performance of fund versus index over 1yr
Source: FE Analytics
Other funds that were chosen had a greater focus on protecting investors on the downside and included Schroder MM Diversity Income and Lindsell Train Japanese Equity.
The trend that will “rip apart” trackers over the next decade
In this article, Neptune’s James Dowey told news editor Alex Paget why trackers and ETFs were in for a very tough 10 years or so due to radical technological change.
Dowey, who is chief economist and chief investment officer at the group, warned many exponential technological rules are combining and nearing a sweetspot which, in turn, will mean many of the largest companies in the index may not even exist in decade or so.
“I think you are going to see established businesses that you and I both know and love (or even take for granted) have their business model ripped apart over the next decade.”
“Hence, I think this is going to be a hugely difficult time for the stock market and the aggregate index. I think large parts of it, to all intents and purposes, won’t exist in 10 years’ time and if it is it will be limping along in a zombie-like fashion having had any profitability ripped away from it through challenges to business models.”
He therefore said that investors therefore need to focus on active management from now on to even see an acceptable return.
Many of our commenters didn’t agree with Dowey, however, with one describing his view as “a load of old cobblers.” Others were slightly more expletive…
Liontrust Special Situations: The stocks we have held for 10 years
Over on Trustnet Direct, Anthony Cross and Julian Fosh, the FE Alpha Managers who run Liontrust Special Situations, revealed four stocks they have held in the fund since launch 10 years ago.
The managers look for companies that have an economic advantage over their competitors, meaning they have contracts assuring them of a regular income stream; use patents or copyright to protect intellectual property that gives them an edge over their competitors; or control their distribution channels.
The managers will then hold these companies for the long term, only selling them when they lose the economic advantage that made them invest in the first place.
This has resulted in a very low turnover in the portfolio, meaning some of the stocks it holds have been there since the day it opened for business a decade ago.
