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The funds the Trustnet team will be watching in 2020

19 December 2019

Trustnet’s journalists reveal their top fund picks for 2020 and explain why they expect them to do well next year.

Undervalued UK equities, Brexit, the ending of the US-China trade war and the increasing popularity of ethical investing are all themes at play for the Trustnet team in their fund picks for 2020.

There were a number of different themes at play in 2019, which the Trustnet team tried to capture with their picks last year.

Below editor Gary Jackson, reporter Eve Maddock-Jones, news editor Rob Langston, and Trustnet Magazine editor Anthony Luzio highlight the funds they believe could prosper in 2020.

It should be noted, however, that these are personal views and should not be taken as investment advice.

 

Gary Jackson – Polar Capital UK Value Opportunities

My outlook for 2020 is based on some pretty consensus predictions: the ‘unloved’ UK will return to favour following the Conservatives’ election victory and value investing will be rewarded after a decade of underperformance.

With this in mind, I’ve gone for a fund run by two of my favourite value managers: Polar Capital UK Value Opportunities, which is headed up by George Godber and Georgina Hamilton.

Godber and Hamilton built up a very strong record on LF Miton UK Value Opportunities before launching Polar Capital UK Value Opportunities in January 2017. The managers use an approach that is entirely bottom-up, seeking out stocks that trading at a temporary discount to their intrinsic value.

Performance of fund vs sector & benchmark since launch

 

Source: FE Analytics

Since launch, the £1.2bn Polar Capital UK Value Opportunities fund has made a 30.70 per cent total return, beating both the FTSE All Share and the average IA UK All Companies peer. It’s important to note that this hasn’t been the strongest period for value investing – the MSCI United Kingdom Value index is up just 15.23 per cent, compared with 26.76 per cent from its growth counterpart.

Any easing of global trade tensions and the expected use of fiscal stimulus could act a catalyst for the value style in 2020 and it would be interesting to see how Polar Capital UK Value Opportunities would perform in this kind of market, especially if other investors return en masse to the UK market.

In addition, Godber and Hamilton look across the market-cap spectrum for opportunities (35 per cent of the portfolio in mid-caps with another 31.6 per cent in small-caps), which may be important if the ‘Boris bounce’ continues to benefit companies more exposed to the domestic economy.

Of course, there are risks to this outlook. Although the markets reacted positively to the Conservatives’ win, Brexit risk was reintroduced when prime minister Boris Johnson sought to legally rule out any extension to the transition period beyond the end of 2020.

And value has been tipped for a resurgence before in the recent past, only for growth investing to continue to dominate – although the managers’ approach has held up pretty well regardless.

 

Rob Langston – Fidelity China Consumer

Ahead of the US presidential election next year, I feel Donald Trump will likely pull something out of the bag when it comes to a US-China trade deal – if only to give him something to crow about during the campaign. This should help give US equities a bit of a lift.

But if US equities stand to benefit from any resolution then I don’t see any reason why Chinese equities shouldn’t also reap the rewards.

In 2018, when the trade stand-was at its peak, the average IA China/Greater China fund fell by 14.18 per cent. This year, however, the peer group has risen by 18.33 per cent (to 16 December) as the prospect of a deal between the two superpowers has loomed.

China remains an underweight for many investors. However, the recent inclusion of China A-shares into the MSCI Emerging Markets benchmark is starting to see greater flows into the market and should help to redress the issue.

The Chinese market is huge and increasingly transitioning from a manufacturing economy and other older industries reliant on exports, to a more developed economy of services.

As such, I’m picking the four FE fundinfo Crown-rated Fidelity China Consumer fund managed by Hyomi Jie. The fund invests in Chinese companies that are involved in the development, manufacture or sale of goods and services to consumers.

Performance of fund vs sector & benchmark over 3yrs

 

Source: FE Analytics

It should be well-placed to take advantage of demographic trends – such as the expanding Chinese middle class – and more structural changes in the domestic economy.

Over three years, the £157m Fidelity China Consumer fund has made a total return of 46.04 per cent against a 40.08 per cent rise in the MSCI China benchmark and a 38.72 per cent gain for the average peer.

 

Anthony Luzio – Miton UK MicroCap Trust

Micro caps have been one of the areas hardest-hit by the political uncertainty of the past three-and-a-half years and should be one of the biggest beneficiaries once the government pushes through its Brexit deal. As a result, I have gone for the Miton UK MicroCap Trust, run by Gervais Williams.

The trust’s focus on micro caps means it does not need an economic tailwind to outperform: micro caps have traditionally outperformed small caps, which themselves have outperformed large caps.

However, this relationship has been turned on its head recently.

Performance of trust vs sector & benchmark over 3yrs

 

Source: FE Analytics

The trust has struggled along with the rest of the micro-cap sector over the past 18 months and is still down 25 per cent from its 2018 peak, but I believe we could be at an inflection point. It appears as though I am not the only one – the discount of the trust moved from 14.22 per cent in July to less than 1 per cent today. While this means there is less potential upside from further discount narrowing, there are plenty of other tailwinds behind the trust that should help drive its performance in 2020.

 

Eve Maddock-Jones – Rathbone Global Sustainability

Being both a millennial and a first-time investor the idea which has resonated with me the most, and which I think will continue to grow in the future as more new investors enter the market, is that of sustainability.

2019 was very much a year of sustainability awareness with climate change activist Greta Thunberg being named Time magazine’s Person of the Year, as well as a rise in protests confronting social issues. As such, the appetite to align your personal beliefs with your portfolio is growing.

Indeed, it’s a positive investment trend for the industry that has continued despite the geopolitical headwinds that have contributed to more uncertain markets this year.

This demand for investment alternatives has translated into the market with a rise in the number of sustainable products targeting ESG (environmental, social & governance) issues over the past 12 months.

As such I am picking the Rathbone Global Sustainability fund run by David Harrison, who has worked in the sustainable investment sphere for more than a decade.

Performance of fund vs benchmark & sector since launch

 

Source: FE Analytics

Applying the UN’s Sustainable Development Goals – a multi-year global framework for sustainability ambitions – to his portfolio, Harrison splits his holdings into key sustainability fields: innovation & infrastructure, resource & efficiency, and health & wellbeing.

Supported by the Rathbones dedicated ethical and sustainable investment team, Harrison’s new fund looks well placed to take advantage of what I believe is a growing trend.

Since launch in July 2018, the £14.1m fund has made a total return of 7.95 per cent, outperforming its IA Global peer group, which made a gain of 6.27 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.