Downing Strategic Micro-Cap Investment Trust, Scottish Mortgage Investment Trust and Hermes Global Emerging Markets are among the most promising options for risk-hungry investors this ISA season, according to several experts.
Having looked earlier this week at the best funds for those nervous about a market correction, below we look at the funds for investors expecting the market to continue rising higher.
These are not funds to rent in the short-term, like the best late-market funds, but are for those looking for superior returns in the long-run regardless of volatility.
The funds below are typically suitable for those who don’t need access to their money soon, such as younger investors with some experience of investing.
As a reminder, investors have until the 3 April to make use of the tax-wrapper allowance, meaning they have just a few weeks to use their £20,000 ISA allowance for 2017/18.
Hermes Global Emerging Markets
First up is the only open-ended fund on the list, the five FE Crown-rated Hermes Global Emerging Markets run by FE Alpha Manager Gary Greenberg and deputy manager Kunjal Gala.
Gavin Haynes, managing director at Whitechurch Securities, said: “Fund manager Gary Greenberg is a seasoned veteran of emerging market investing and this fund’s investment style focuses upon high quality names, whilst keeping a key valuation discipline.
“The fund will hold around 60 stock names and is not constrained in terms of the benchmark index or at a sector and regional level.”
Performance of fund vs sector and benchmark since manager start
Source: FE Analytics
Since taking over the $4.1bn fund in 2011, it has returned 88.63 per cent to investors – more than double both the MSCI Emerging Market index and the IA Global Emerging Market sector average, as the above chart shows.
“The fund has outperformed its benchmark index, and with lower volatility, over most time periods,” Haynes added. “We believe that this fund offers investors solid long-term core exposure to these markets.”
Currently, the portfolio is 34.07 per cent weighted to technology stocks with financials and consumer discretionary companies also overweight positions.
Conversely it has no exposure to real estate or telecoms and a small exposure to utilities and energy, relative to its benchmark.
The fund, which is on the FE Invest Approved list and has been backed by financial advisers for inclusion on the Adviser Fund Index (AFI) series, has a clean ongoing charges figure (OCF) of 1.13 per cent.
Scottish Mortgage Investment Trust
Turning to the closed-end universe, Hargreaves Lansdown senior analyst Laith Khalaf said Scottish Mortgage Investment Trust is another ‘adventurous’ fund investors should consider.
Another five FE Crown-rated offering, the £6.3bn investment trust has been managed by Baillie Gifford’s James Anderson since 2000, with deputy Tom Slater joining in 2009.
Khalaf said: “This trust invests in companies with the potential to dominate their industry - wherever they are located.”
As such, it is no surprise to see companies like Amazon (9.3 per cent) and Tesla (6.1 per cent) among its largest investments.
Fellow tech giants such as Chinese e-commerce and technology companies Baidu (4.1 per cent), Alibaba (7.8 per cent) and Tencent (8 per cent) are also prevalent in the firm’s top 10 holdings.
Overall, the trust is made up of 78 positions including 47 unlisted stocks making up around 13.7 per cent of the portfolio. Its top 10 holdings account for 53.9 per cent of the net asset value (NAV), with the top 30 totalling an 84.3 per cent weighting.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Over the last decade the fund has been the best performer in the IT Global sector, outperforming the FTSE All World benchmark by 193.88 percentage points.
Khalaf said: “They have performed well in recent years, although some now question whether investors have got ahead of themselves, and after such a strong run, a setback can’t be ruled out.
“Excellent recent performance means the shares have tended to trade at a modest premium to NAV, though they are currently available at a small discount.”
The investment trust’s shares are trading at a 1.9 per cent discount to NAV, according to the Association of Investment Companies (AIC). It is 3 per cent geared, has a yield of 0.7 per cent and ongoing charges of 0.44 per cent.
Downing Strategic Micro-Cap Investment Trust
The final fund on the list is the recently launched, £51.9m Downing Strategic Micro-Cap Investment Trust run by Judith MacKenzie.
The manager, who outlined some of the most interesting prospects on the alternative investment market (AIM) last week, has run the open-ended MI Downing UK Micro-Cap Growth fund since 2011.
Ben Stoves, investment analyst at Rowan Dartington, said: “It is a specialist fund that is taking large stakes in a concentrated portfolio of fledgling companies in a way that is akin to a private equity manager.
“It’s invested in just 18 companies, some of which are struggling, so it’s not for the feint-hearted.”
Indeed, since its launch last year the trust has lost 6.6 per cent while the IT UK Smaller Companies sector has gained 7.14 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
Despite the poor start, Stoves said “Mackenzie’s depth of research, knowledge and enthusiasm for these companies is very impressive and the potential is significant for patient investors.”
Indeed, the open-ended product has outperformed the IA UK Smaller Companies sector and Numis Smaller Companies + AIM ex IT index since she took over in 2011, returning 132 per cent.
The investment trust’s shares are trading around par to the NAV, according to the AIC. It has ongoing charges of 1.43 per cent.