Funds Premier League: Top four regional funds

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Funds Premier League: Top four regional funds

Money Observer's four regional sectors look at Europe excluding UK, Japan, Asia Pacific ex. Japan and North American-focused holdings .

Edinburgh-based Baillie Gifford, which won our fund award for best smaller investment group, showed off its region-specific knowledge by landing two of the spots.

VT De Lisle America scored a perfect "three", after finishing in the top quartile in its sector for annual returns over the past three consecutive years.

Below, we also find out how Newton Asian Income benefited from struggling to find high-yielding stocks in India.

Asia Pacific excluding Japan sector - Newton Asian Income

Jason Pidcock once again takes the crown in the Asia Pacific excluding Japan sector.

A particularly good asset allocation decision from Pidcock was for the Newton Asian Income fund to go underweight in India in a period that has seen the rupee plummet to record lows.

While he says it would be nice to be able to boast he had foreseen the country's troubles, he admits the underweight position came from simply struggling to find high-yielding stocks there.

India currently accounts for a paltry 0.1% of the portfolio.

We've had the 'steady Eddies' that are still growing, some very slowly, and paying a good dividend yield."

A couple of successful IPO participations have helped the fund's recent success, but Pidcock says: "It has been more to do with the fact we've had the 'steady Eddies' that are still growing, some very slowly, and paying a good dividend yield."

Though there are clearly challenges in the region, Pidcock says the long-term growth story remains "terrific", with favourable demographics and growing consumer wealth.

Politically things are also getting easier for companies, he explains, with more entrepreneurs now able to set up businesses, and also being able to grow regionally.

His top-performing stock of late has been casino operator Sands China. Pidcock says gaming revenues in China have been steadily increasing for some time, and the Sands group "knows its business" after successfully running casinos in Las Vegas for decades.

"It's our way of playing consumer spending," he explains.

Japan sector - Baillie Gifford Japan

"Japan has been a fertile place for growth investing lately, despite people seeing it as more of a value market," says Sarah Whitley, manager of the Baillie Gifford Japan fund.

And she thinks there is more growth to come, with many positive factors in the country - profit growth momentum and the third arrow of Abenomics, for example – that have not yet been taken into account by the market.

Additionally, Japan is looking to join the Trans-Pacific Partnership (TPP) – a free-trade agreement that aims to further liberalise the Asia-Pacific economies.

"These events are going to bring about a lot of positive change in the mid-term. And already companies are thinking much more clearly about brands, which has historically been a weakness in Japanese companies," explains Whitley.

Meanwhile, she particularly likes manufacturing businesses. She points to Carcos and Mazda as two brands that have done especially well, benefiting from the weakened yen this year.

Europe excluding UK sector - Baillie Gifford European

The Baillie Gifford house style is a longterm one, with low turnover (around 10 to 20% a year) and a bottom-up approach.

Coutts' Baillie Gifford European fund is no different: its top 10 holdings today are "not radically different" from what they were five or even 10 years ago. In the last quarter there were just three changes to the portfolio, with one sell and two purchases.

While Coutts doesn't get involved in macro speculation, his focus on stockpicking has nonetheless still resulted in around half of the fund being focused in northern Europe, specifically in Switzerland, Sweden and Norway.

"We find a disproportionate number of well-run businesses in those areas. They are small domestic markets, so companies have to internationalise and become global in the very early stages of their development," explains Coutts.

People underestimate the value of compounding and are always looking for the next big thing. But these unexciting niches can continue to do very well for you."

The result of this is that some of these companies have very strong footholds in countries such as China.

In contrast Coutts points to North America, where a massive domestic market means businesses don't have to look abroad for business for many years, which can leave them behind in international terms.

Atlas Copco, a Swedish engineering company, is one holding that embodies everything Coutts looks for. Indeed, it has been a stalwart of the fund's portfolio for a lengthy tenure of 25 years.

Coutts says it dominates a small niche industry – industrial compressors – where people need good-quality products and, with a large service element to the business, a strong relationship is built with the customer.

It is these "non-sexy" products that Coutts says tend to do well and are the crucial niches to exploit "if you're setting out to dominate the world".

In regard to the longevity of the holding, Coutts is nonchalant.

"If you get your basic business analysis right, buy at a good price and the company continues to do well, then there is very little reason to sell.

"People underestimate the value of compounding and are always looking for the next big thing. But these unexciting niches can continue to do very well for you," he says.

Coutts likes being in Edinburgh away from the noise and pressure of the City, which he thinks frees him up to do his job in the way he prefers: "When you are investing, you are owning part of a business, not just trading paper".

North America sector - VT de Lisle America

"I don't think I've actually done that well, it's just that the competition has been weak; this sector has underperformed disgracefully," says Richard de Lisle, a self-taught investor with a 40-year history in the industry, including a lengthy stint at Morgan Stanley.

Now de Lisle is managing two of his own funds "away from the noise of the City".

Small value stocks are what de Lisle is looking for, with low debt, the capacity for dividend growth and high levels of insider ownership all desirable qualities.

The VT De Lisle America fund is benchmarked to the S&P 600, rather than to the more common S&P 500, which de Lisle thinks gives him an edge over his competition.

"We hold stocks that others don't, and because we are long-term we don't have to find new names very often," he adds.

I don't think I've actually done that well, it's just that the competition has been weak; this sector has underperformed disgracefully."

Turnover is around 50% per year, with an average holding period of four years.

De Lisle believes low beta stocks have the upper hand, saying they will tend to outperform the market over the long term.

"I have managed to over-read on the topic [of investing]," he says as he explains some of his many theories on the market. Uncommonly, he has a backward-looking focus, maintaining that the last 10 years of a company's history "will tell you everything you need to know".

De Lisle says he refuses to look at the future because a company's culture will probably stay the same.

"If it's a company that makes money for shareholders or has a good control of debt, you can see that from the last 10 years and it is unlikely to change," he explains.

For that reason you won't find any new companies in the holdings of the $26 million fund (£16.1 million).

"Statistics show that the majority of new companies will lose money in the first 24 months of trading," he says; that's another of his market theories.

Read more on the Funds Premier League; Introduction to the November review, top four UK funds, top two bond funds, top three mixed asset funds and top two global funds.

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Fund Data
Name1 Year (%)3 Years (%)5 Years (%)Rating
Baillie Gifford European22.7483.17117.865 star(s)
Baillie Gifford Japanese17.1698.82150.824 star(s)
Newton Asian Income5.5135.3746.862 star(s)
VT De Lisle America29.1199.45170.504 star(s)

Every year Money Observer runs the rule over 11 popular fund sectors from which it picks the Premier League team. Find out which investment vehicles made the cut in: Premier League of Funds delivers super returns.