Nine funds to help diversify your portfolio
24th September 2014 09:31
The first part in our new quarterly series taps into the global and regional preferences of a panel of leading multi-managers - who build their investment portfolios from underlying funds rather than individual stocks - and highlights the funds or investment trusts they would choose to get access to those markets.
Our inaugural report has revealed an interesting divergence of opinion among our multi-managers on some key asset classes, most notably US equities.
There is some agreement, with Japan and UK commercial property both firm favourites following strong performances this year. Meanwhile, tensions in Eastern Europe have led two managers to withdraw from the region, while a celebrity circus has put one manager off a new, high-profile UK equity fund.
David Hambidge is head of multi-asset funds at Premier Asset Management
Premier's David Hambidge has been overweight UK commercial property in his income portfolios for more than a year now, and despite the FTSE All-UK Property index returning nearly six times as much as the FTSE All-Share index in the year to date, he still believes there is value in the asset class.
"We believe there is further scope for capital gains, as prices are still significantly below their 2007 peak," Hambidge explains. His favoured vehicle is , as it has no exposure to London - which Hambidge dislikes as a commercial property location - and is overweight industrial units, which he expects to perform "particularly well" over the next few years.
Hambidge is also bullish on Japanese equities, despite the "dire performance" of the asset class over the past 25 years. "We believe returns on Japanese equities could be about to improve greatly as the [Shinzo] Abe government puts in place radical reforms, while Japanese companies are becoming much more shareholder friendly," he says.
His Japanese investment fund of choice is Coupland Cardiff Japan Income & Growth Fund, which has performed well since launch in February 2013, returning 20.4% over one year to 31 July - compared with 15.1% from the MSCI Japan index over the same period - and yielding more than 3%.
The US is currently Hambidge's least favourite region. "In our opinion, US equities are considerably overvalued, while corporate margins are stretched and will likely revert to the mean, depressing share prices," he says.
However, those who disagree should consider Nordea 1 North American All Cap, which the manager is attracted to for its value focus.
Ian Aylward is head of multi-manager research at Aviva Investors
Like Hambidge, Aviva Investors' Ian Aylward also predicts a bright future for Japanese equities, rather than another false dawn. "We believe in Abenomics. Most importantly, the slower-moving 'third arrow' [structural reform] will improve corporate governance and reduce the tax burden on firms," he says.
Aylward says his preferred fund in the region has "long been" . "Manager Stephen Harker and his team have many years of experience, despite being based, unusually, in York. Their style is very distinctive - investing solely in very large-cap, deep-value stocks. This approach has worked well in Japan for a long time," he adds.
In fixed income, Aylward sees the most value in European loans, which he claims have seen "less chase for yield" than other fixed-income instruments and thus, he believes, still offer value at current yield levels.
He recommends M&G European Loan for this asset class, which he rates for its highly experienced team and "negligible" turnover. "Experience is essential in this specialist area and the managers have this, alongside a keen eye for legal documentation," Aylward explains.
In contrast, he says he is "wary" of Eastern European equities and has recently exited his holding in as a result. However, he stresses that this decision was based on the region rather than the fund, which returned more than 8% in the six months to 31 July and 'remains a good option for investors bullish on the region'.
John Ventre is head of multi-manager at Old Mutual Global Investors
Multi-asset stalwart John Ventre is, with Hambidge, a fan of commercial property. "Right now, we are getting a much higher yield in commercial property than in equivalent-quality fixed interest. Importantly, we also get some inflation protection, as rents tend to be reviewed upwards," he explains.
Ventre's largest UK commercial property holding is , which he recommends for manager Fiona Rowley's focus on "harvesting yield from prime and good secondary property". In the 12 months to 31 July the fund returned 11.5%, compared with 6.8% from its sector, IMA property.
Ventre is also bullish on emerging markets, particularly emerging market debt. "Markets perceive that higher US interest rates will lead to weakness in emerging assets, as they did in the 1990s. However, then US rates were rising above 5%, while the peak of this interest rate cycle could be as low as 2.5%. Moreover, investors don't abandon yields of more than 10% so easily," Ventre says.
He adds that buying emerging market debt also gets investors out of sterling, which he believes is overvalued. His investment of choice is Money Observer Rated Fund , co-managed by the joint heads of emerging market fixed income at Investec, Peter Eerdmans and Werner Gey Van Pittius.
Again, like Hambidge, Ventre believes valuations are "too rich" in the US and is steering relatively clear. "Headline US equity indices are well into the danger zone in which investors can lose meaningful capital," he says.
Despite this, Ventre favours "cheap small-cap stocks" in the US, which he says are less exposed to valuation concerns. In this area he is buying Legg Mason Royce US Small Cap Opportunity, which has performed well over three years.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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