Merian Global Equity Absolute Return, Artemis Global Income and Invesco Global Focus have all been dropped from the FE Investments Approved List following its latest semi-annual review.
The list aims to identify the best funds that are run by “outstanding” groups and are held in high regard by the adviser community.
However, three funds – BlackRock Emerging Markets, Unicorn UK Ethical Income and AB US Concentrated Equity – have been added to the list in its rebalance.
In its latest review of the Approved List, FE Investments analysts highlighted the challenging conditions for investors in the opening quarter of 2020.
“The large correction that many bearish commentators had been forecasting for years finally came to be in 2020, although predictably not in the way many had thought,” analysts noted.
“The ‘black swan’ event that was the coronavirus left markets largely unmoved for many months, until a violent correction saw markets sell-off at unprecedented levels taking almost everyone by surprise.
“Previously we had positioned our portfolios more defensively, but we would be lying if we said we were prepared for what occurred.”
Below, Trustnet looks in closer detail at the funds that have been removed from the Approved List and those that have just been added.
Artemis Global Income
First up, the £1.6bn Artemis Global Income fund – overseen by Jacob de Tusch-Lec, Sam Morley and James Davidson – has been removed due to “consistently poor performance”.
“Whilst we understand that the manager’s [De Tusch-Lec] value style has been out of favour in recent years, we feel the situation has not been helped by poor stockpicking,” FE Investments analysts explained.
“We have identified a number of poor stock picks from the manager, who we felt was not self-critical enough and did not re-evaluate the decisions he had made.”
This, said the analysts, was a “clear red flag” and they were no longer happy to have it on the Approved List.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years, Artemis Global Income has made a loss of 10.65 per cent, compared with a total return of 16.92 per cent for the MSCI AC World benchmark and a 6.11 per cent gain for the average IA Global Equity Income peer. It has a yield of 3.05 per cent.
Invesco Global Focus
Formerly known as Invesco Global Opportunities, the £163.4m Invesco Global Focus fund was overseen until recently by ex-chief investment officer Nick Mustoe.
Now managed by Randall Dishmon (and with Stephanie Butcher as chief investment officer at Invesco), the FE Investments team believe new management will “fundamentally alter” how the fund is run and have removed it from the Approved List.
Invesco Global Focus targets long-term capital growth through a concentrated portfolio of 30-40 stocks, with at least 80 per cent invested in global equities.
Over the past five years, the fund has made a total return of 51.61 per cent, compared with a gain of 44.59 per cent for the average IA Global peer.
However, under new management, FE Investments analysts expect the fund’s style to transition from value to growth.
“The Approved List already includes many growth funds with a proven track record that we have higher conviction in and, therefore, we will be placing a sell rating on the fund,” they said.
Merian Global Equity Absolute Return
The final fund making way in the Approved List was the $1.8bn Merian Global Equity Absolute Return fund, which over the past 18 months has lost “an unacceptable amount” for a strategy targeting absolute returns in all conditions. In the 18 months to 30 April, the fund lost 17 per cent.
“We have seen that the managers have made several changes to the fund to mitigate the risk of large losses in the future; this may well be successful, but it is clearly not the fund that we originally bought into and for this reason we are not happy maintaining our position,” said FE Investments.
Merian Global Equity Absolute is overseen by Ian Heslop, Amadeo Alentorn and Mike Servent and targets absolute returns over rolling 12-month periods with a low correlation to equity and bond markets. It aims to do this with a market neutral portfolio of global stocks and a volatility limit of 6 per cent.
BlackRock Emerging Markets
The first of three additions to Approved List is the £324.7m BlackRock Emerging Markets fund, managed by Gordon Fraser and Andrew Swan.
“This fund has a flexible, high-turnover approach to investing in emerging markets,” the FE Investments analysts noted. “Although we have other funds following a similar strategy in the shortlist, these funds tend to be quant led and as such do not deviate greatly from the index.”
Performance of fund vs sector & benchmark under Fraser
Source: FE Analytics
BlackRock Emerging Markets has a long-term investment horizon of at least five years, but Fraser has impressed the FE Investments team since taking over the strategy in 2017, having made a total return of 20.68 per cent (compared with returns of 0.88 per cent for the MSCI Global Emerging Markets benchmark and a loss of 2.08 per cent for the average IA Global Emerging Markets peer).
Unicorn UK Ethical Income
Another addition to the Approved List is the £37.8m Unicorn UK Ethical Income fund, managed by Fraser Mackersie and Simon Moon.
The analysts have recommended Mackersie and Moon's Unicorn UK Income fund for a number of years and it has been a solid performer in FE Investments' portfolios.
“The UK Ethical Income fund employs exactly the same strategy, but Unicorn has hired dedicated staff to work on the environmental, social & governance (ESG) side to employ negative screens to remove companies from the fund,” they said. “The fund still has the same small-cap bias and performs in line with the main strategy.”
Since launch in April 2016, Unicorn UK Ethical Income has made a total return of 0.62 per cent compared with a gain of 12.88 per cent for the FTSE All Share benchmark and a return of 4.41 per cent for the average IA UK Equity Income peer. It has a yield of 5.71 per cent.
AB Concentrated US Equity
The final addition to the Approved List following the latest review is AB Concentrated US Equity overseen by James Tierney.
The strategy invests in a concentrated portfolio of US large-cap equities with a focus on “quality, seasoned business with clear competitive advantages”.
The fund’s concentrated approach has resulted in a 20-strong portfolio with more than 60 per cent of the names represented in the 10 largest holdings.
Its top holdings include Microsoft (9.49 per cent), Mastercard (8.61 per cent), Abbott Laboratories (7.88 per cent) and IQVIA (6.98 per cent).
During the past three years, the fund has made a total return of 47.45 per cent against a 30.63 per cent gain for the S&P 500 (in sterling terms) and a 27.01 per cent return for the average IA North America peer.