Rated Funds: The funds placed 'under review' after first quarter

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Rated Funds: The funds placed 'under review' after first quarter

Each quarter, we take a look at our active Rated Fund list, providing a breakdown on a sector-by-sector basis.

Funds that are placed 'under review' are highlighted. This could be down to a manager change, performance concerns or a 'soft closure'. We also put investment trusts on high premiums 'under review'.

Being placed 'under review' is not a 'sell' recommendation, as the fund or trust remains a Rated Fund. It does, however, indicate that our investment committee has some concerns and therefore does not view the fund as a 'buy' for new investors.

The review (and performance figures contained within) covers the start of January 2018 to 31 March 2018.

Asian Equities

Asian markets tracked western developed markets down over the quarter. The FTSE Developed Asia Pacific ex Japan index lost 6.1%. Emerging Asian markets fared better: the FTSE Emerging Asia Pacific index lost 2.9%. The broader FTSE Asia Pacific ex Japan index lost 4.4%. On a country-specific basis China fared far better than India.

Best performers in the wider asset group were Fidelity Emerging Asia (-1.1%) and Smith & Williamson Far Eastern & Growth. This fund, which includes Japan in its remit, lost 1.88%.

The worst performers in this pan-Asia cohort were investment trusts Scottish Oriental Smaller Companies (SST) (-8.4%) and Invesco Asia (IAT) (-7.4%). Both trusts are conservatively run but both have significant exposure to India, which was very weak in the first quarter.

However, it is the persistent and disappointingly poor performance of Scottish Oriental Smaller Companies that leads us to place the trust under review this quarter.

Our single country focus funds for India and China had a very contrasting quarter. Both investment trusts outperformed their open-ended counterparts. The MSCI India index fell 10.3% over the quarter, but the Jupiter Indian fund dropped by 15%.

Should underperformance persist it will be placed under next quarter. Aberdeen New India trust (ANII) was better insulated against the falls - it dropped by 8.5% and its one-year loss of 3.5% is far better than the Jupiter fund, down 11.9%.

Fidelity China Special Situations (FCSS) was the only member of the group in positive territory with a 1.5 % gain. In contrast Janus Henderson China Opportunities lost 2.4 %. The longer-term record for both remains very good.

Trust under review: Scottish Oriental Smaller Companies

European equities

The quarter's index performance broadly reflected the wider world: the FTSE Europe ex UK index fell -4.4%. The EMIX Smaller European Companies ex UK index fared a little better, down 3.6%.

Just one fund, Man GLG Continental European Growth, made a positive return in the first quarter. Its 1.2% gain further cements its status as one of the best-performing funds in the region over longer periods. Marlborough European Multi-Cap was the next best performer with a loss of 1.9%.

The standout loser in the group was the small company-oriented TR European Growth trust (TRG). It fell by 12.6% over the quarter, but this was compounded by a 7 percentage point move in its discount to net asset value.

That is now -6.8% compared with a 1% premium when the year started.

Another Janus Henderson managed trust was also among the back-markers. Henderson European Focus (HEFT) lost 6.8 %, although that loss was almost entirely due to a move from a premium of 2 % to a discount to net asset value on its shares of -4.3 %.

No funds or trusts under review.

Emerging markets

There has been some rotation in fund flows from developed markets, chiefly away from the US, and into developing markets over the quarter. That is reflected in index returns from the asset class.

Latin America was the best performing emerging market region over the quarter. The FTSE Latin America index gained 3.8%, followed by MSCI Frontier Markets with a 1.4% uplift. The broader MSCI Emerging Markets index was down 2.2%.

Index performance is broadly reflected among the Rated Funds. BlackRock Frontiers trust (BRFI) (up 2.9%) and its sister trust BlackRock Emerging Europe (BEEP) (-0.8) led the pack over the period, closely followed by Aberdeen Latin America Equity, which lost 1.6%.

The worst return was from Invesco Perpetual Global Emerging Markets, down 5.2%.

However, Templeton Emerging Markets (TEM) (-4.7%) is the trust we are placing under review, following the sudden departure of lead manager Carlos Hardenberg, who had transformed performance since taking over from Mark Mobius in October 2015. His deputy Chetan Sehgal has taken over but is something of an unknown quantity at this stage.

Trust under review: Templeton Emerging Markets

Global bonds

The broad Bloomberg Barclays Global Aggregate Bond index gained 1.4% as investors sought refuge from risk assets such as equities.

Only the debt specialist trust Twentyfour Select Monthly Income (SMIF) managed to keep pace with that index reading, gaining 1.5% over the quarter, bolstered by demand for its 6.5% income yield.

However, the trust's premium to net asset value has also risen a little and now stands at 4.8%.

Marlborough Global Bond was the worst performer with a 3% loss over the quarter, but investors will be comforted by its 3.9% yield.

No funds or trusts under review

Global equity income

Equity income strategies have largely been out of favour with investors in the first quarter, and indeed for the past six months, and that is reflected in the index returns.

The MSCI World High Dividend Yield index lost 6.6% in the first three months, compared with a 4.8% drop for the MSCI World index.

All Rated Funds in the group beat the first-mentioned index return over the period, led by Guinness Global Equity Income, which fell by just 3%, closely followed by Schroder Global Equity Income (-3.9%).

The latter fund is being placed under review because manager Ian Kelly left the firm at the end of March. New managers (but old hands) Nick Kirrage and Simon Adler have taken over.

The worst performer was Sarasin Global Higher Dividend (-6.2%), followed by investment trusts Henderson International Income (HINT) (-5.9%) and JPMorgan Global Growth & Income (JPGI) (-5.8%).

Despite this short-term weakness, demand for shares in income-paying investment trusts remains strong. Shares in Murray International  (MYI)and JPMorgan Global Growth & Income continue to trade on premiums to net asset value of more than 4%. We would become concerned if they exceed 5% for new purchases.

Fund under review: Schroder Global Equity Income

Premium watch: Murray International and JP Morgan Global Growth & Income

Global growth

Sterling's continued strength against the dollar in particular over the first three months compounded losses for investors in overseas markets by around 2.5%.

The MSCI World index dropped 4.8% in sterling terms over the quarter, while the FTSE World ex-UK index (a useful barometer for global funds that largely exclude the UK) fared little better with a fall of 4.2%.

However, four funds in our adventurous global growth group bucked the losing trend, led by a 1.8 per vent gain from Standard Life Global Smaller Companies and Ardevora Global Equity, a fund that has the ability to 'short' shares of companies that it feels are overvalued. The best performance among our 'core' choices was from Rathbone Global opportunities, down a shade under 1%.

All adventurous selections beat the Investment Association's Global sector average loss of 5%, as did all of the core choices, except for the normally solidly reliable Artemis Global Growth fund, which had an uncharacteristically poor quarter, losing 6.1%.

The worst return came from Scottish Investment Trust (SCIN), which lost a disappointing 7.8% over the quarter. Although its discount to net asset value is largely unchanged at a shade under 8%, the shares have traded on a small premium over the past year, so that fall in its rating has contributed to a poor overall performance over the past year.

However, Scottish's 1.8% return compares with a sector average of 13.1% from 22 other trusts in the past year. Its net asset value returns are also the second-weakest in the sector over a year, leading us to place the trust under review.

Trust under review: Scottish Investment Trust

Japanese equities

Japan's benchmark Topix index was one of the stronger global equity markets in sterling terms, losing 2.6%.

Three Rated Funds with strong long-term records made meaningful gains in the first quarter and were the top three Rated Funds overall over the quarter. Legg Mason IF Japan Equity returned 10.7%, the best performance among all actively managed Rated Funds over the quarter.

The hedged to sterling share class (the only class currently available to retail investors) for Lindsell Train Japanese Equity also returned a very healthy 6.6%.

The small-company oriented Baillie Gifford Shin Nippon trust (BGS) continued its very strong run, returning 5.8%. However, as we have previously cautioned, the trust continues to be quoted on a very high premium to net asset value (currently 11.8%), despite the regular issuance of new shares to satisfy demand.

We will continue to rate the trust, but highlight this high premium as potentially unsustainable should sentiment against the trust or Japanese equities change for the worse.

As with other asset groups, equity income strategies were not popular. Our income choice for this group, LF Morant Wright Nippon Yield fund, fell 6.1%. Our open-ended smaller company choice, M&G Japan Smaller Companies, also had a comparatively bad quarter, down 5.9%.

The strong team approach fostered by Baillie Gifford's Japanese equities desk leads us to keep faith with Baillie Gifford Japan trust (BGFD) and Baillie Gifford Japanese following the anticipated and planned retirement of manager Sarah Whitley in April.

The high premium on the trust may persuade investors to focus instead on the open-ended Baillie Gifford Japanese.

Premium watch: Baillie Gifford Shin Nippon and Baillie Gifford Japan

Mixed asset funds

The FTSE UK Private Investor Conservative index returned -2.4% over the quarter. In the 0-40% mixed asset group there were no major deviations from this. The best performer was TM Fulcrum Diversified Core Absolute Return (0.1%) and the worst was Artemis Monthly Distribution (-3.7%).

In the 41-60% mixed asset group the representative FTSE UK Private Investor Balanced index returned -3.8%. All three funds beat that return, marginally.

In the 61-100% mixed asset group the representative FTSE UK Private Investor Growth index returned -4.6%.

Funds that are heavily exposed to equity income strategies performed worse than this, notably Shires Income (-7.5%) and TB Wise Multi-Asset Income (-7.3 per vemt). We feel this is a result of the asset class being out of favour rather than anything to be concerned about with regards the management of these funds.

However, Newton Multi-Asset Growth is being placed on review following the retirement of Christopher Metcalfe, although the management group stresses its team-based approach for the fund.

The top performer with a loss of -3% was Unicorn Mastertrust, which is a fund of investment trusts.

Fund under review: Newton Multi-Asset Growth


The FTSE EPRA/NAREIT Global index, which tracks the performance of real estate securities, was particularly weak, falling 7% over the quarter. In contrast the IPD UK All Property index, which tracks the total return from 'bricks and mortar' commercial property, rose by 1.4%.

In the latter group, F&C Commercial Property (FCPT) was the stand-out performer with a gain of 5.2%, which was boosted by a near 3% improvement in its rating - moving from a small discount to NAV to a small premium.

The worst performer, Fidelity Global Property, marginally outperformed the benchmark index with a loss of 6.5%.

No funds or trusts under review


Performance against official sectors benchmarks have not been measured in this review.

Worldwide Healthcare IT (WWH) has not been placed under review following the abrupt departure of co-manager Sam Isaly from management group Orbimed. Sven Borho, founding partner at the group, has assumed full responsibility for the portfolio he co-managed with Isaly since 1995.

Indeed, this trust has outperformed the more biotech-oriented International Biotechnology trust, which was among the worst performers overall this quarter, having lost 10.4% and its premium rating too, as investor enthusiasm for US biotechnology shares waned.

However, Polar Capital Biotechnology fund managed to buck that trend, returning a respectable gain of 2.6% over the quarter.

Guinness Global Energy was another notable loser among specialist funds, it dropped 8.1%, yet marginally outperformed its benchmark MSCI World Energy index.

The clear winner among specialist selections was Allianz Technology (ATT), which gained 3.5%, with its shares also moving to a small premium to net asset value. The open-ended Fidelity Global Technology fund also put in a relatively strong show, losing just 1.5%.

No funds or trusts under review

Sterling bonds

Representative government and corporate bond indices suffered minor falls of up to -1.2% over the quarter.

That performance is broadly reflected among the Rated Funds in the group, although funds pursuing high yield strategies tended to perform marginally better than others, notably Schroder High Yield Opportunities, which has a portfolio yield of 6%.

Regular income-payers Axa Framlington Managed Income (yield 5%) and Artemis High Income(yield 5.3 %) also held up well on a total return (income reinvested) basis.

No funds or trusts under review

UK equity income

Investors in UK equities generally suffered a torrid quarter, with UK-listed shares among the worst performers on a global basis. The benchmark FTSE 100 (UKX) index fell 7.2% over the quarter, while the wider FTSE All-Share (ASX) fared little better with a 6.9% fall, as did the FTSE UK Dividend+ index.

While not making gains over the quarter, the vast majority of funds in the adventurous UK equity income group did far better than the indices.

Notable outperformers were the small-company oriented Diverse Income trust (DIVI), which fell by 0.7% and fellow investment trust Lowland (LWI), down just 3%. The value-oriented Schroder Income, a new entrant Rated Fund for 2018, fell by just 1.3%.

However, fellow new entrant Premier Optimum Income had a very inauspicious start, falling 8.5 %.

This suggests its options-writing strategy (which is designed to boost its yield, currently 7.6 %) has not worked well in the first quarter. That is particularly true when measured against the fund it replaced: Schroder Income Maximiser fell by just 1.2%. Such a disappointing comparison leads us to place the fund under review.

Among the core UK equity income selections, TB Evenlode Income is being placed under review after the managers announced it will 'soft-close' the fund by applying a mandatory 5% charge to new investments from May. That is a shame, as it is the best performing core fund in the group, having lost 3.4% over the quarter.

 Other funds in the core group marginally outperformed the benchmark indices over the quarter.

Funds under review: TB Evenlode Income and Premier Optimum Income

UK Growth

Our growth-oriented choices mostly did well against the benchmark indices: the FTSE All-Share fell by 6.8% and the FTSE 250 index of medium sized companies fell by 5.7%.

Among the adventurous selections the best protection against market falls came from investment trust Fidelity Special Values, which was the only member of the group to post a positive return, of 2%. However, that gain arose from the trust moving from a 4% discount to net asset value to a premium of 1.9%. The trust's net asset value actually fell by a still-respectable 4.1%.

Two other adventurous choices registered decent performance: the small-company oriented MI Chelverton UK Equity Growth fund lost just 0.6% and Ardevora UK Equity fell by 1.7%.

It was a similar story among core choices: CFP SDL UK Buffettology shed only 0.9% and four other core choices significantly outperformed the market.

 The outlier in performance among adventurous choices was Unicorn UK Growth, with the fund slipping 7.7% over the quarter, while core choice Slater UK Growth slipped by 6.2%, which was still ahead of the All-Share.

Old Mutual UK Dynamic Equity has been placed under review. A Rated Fund since 2016, its very strong performance has drawn too much interest from investors and the fund is now effectively closed to new investments.

Fund under review: Old Mutual UK Dynamic Equity

UK Smaller Companies

The Alternative Investment Market, which has been a rich hunting ground for small company funds in recent years, bucked the trend in UK markets. The FTSE AIM All-Share index fell by 3.1% over the quarter, less than half the fall in the FTSE Small Cap index (-6.5%), which in turn performed marginally better than the All-Share (-6.8%).

Indeed, it is somewhat odd to see small company funds performing better than their larger brethren in a period of market stress. The percentage fall among most Rated Funds in the group was in the low single digits, with the best performer being BlackRock Throgmorton (THRG).

However, we are placing the trust on performance review due to a manager change. The trust has two distinct portfolios: a 'long-only' portfolio which was previously managed by Mike Prentis to very good effect; coupled with a portfolio of contracts for difference (allowing 'shorting' of stocks) that is run by Dan Whitestone, who joined the trust in 2015.

Whitestone will now manage both the long and short stock positions, while Prentis will continue to give him unofficial support. However, given Whitestone's relative inexperience, we will watch to see how the trust performs over the coming month's before reconfirming its Rated status.

The worst performing member was Strategic Equity Capital trust (SEC), which fell by 5.9% over the quarter. The trust has a concentrated portfolio which is run in a private equity style to extract value from its holdings. However, it is taking some time for performance to shine again - its three-year returns are not compelling, so we may place the trust under review should returns not improve.

Trust under review: BlackRock Throgmorton

US Equities

US shares mainly ended the quarter in negative territory despite posting sharp gains towards the end of March. The S&P 500 finished down 1.2% but the tech-heavy Nasdaq Composite bucked the trend by gaining 2.3%.

In sterling terms, however, the currency's strength turned those numbers into losses: -4.8% for the S&P 500 and -2.4% for the Nasdaq Composite. Smaller companies were in between: the Russell 2000 index lost 3.7% over the quarter. The best performer was Brown Advisory US Smaller Companies, a new addition for 2018, which lost just 0.3%.

Our two investment trust constituents were the worst performers: the heaviest fall from our only income-oriented choice in the group, North American Income (NAIT), which has suffered more than most other Rated Funds with an equity income mandate. The only positive aspect to take from its 10.1% loss is that it has boosted the yield on the shares from 2.8% to 3.2%.

JPMorgan US Smaller Companies also performed poorly, down 9.8%. It has been a Rated Fund since 2014 so we, and investors, are hoping that this quarter's performance is a short-term blip.

However, the trust has traded on a discount of up to 15% in the recent past, so the current 3.8% discount to net asset value shows there is scope for the discount to fall further from here should sentiment continue to be poor.

One other fund is currently giving us cause for some concern: Fidelity American Special Situations, a Rated Fund since 2015, has extended a poor recent performance record with a quarterly loss of 7.46 %. We will monitor the fund closely over the next three months before considering whether to formally put in under review.

No funds or trusts under review.

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Fund Data
Name1 Year (%)3 Years (%)5 Years (%)Rating
--- star(s)
AXA Framlington Mgd Inc3.4216.3835.125 star(s)
Ardevora Global Equity16.5863.38119.384 star(s)
Ardevora UK Equity16.8437.1576.124 star(s)
Artemis Global Growth14.3943.4494.164 star(s)
Artemis High Income3.4914.5032.561 star(s)
Baillie Gifford Japanese22.2465.1697.865 star(s)
Brown Advisory US Sm Cos15.7335.4978.984 star(s)
CFP SDLUKBftolgy19.6668.25119.095 star(s)
Fidelity American Spec Sit3.6936.5586.661 star(s)
Fidelity Emrg Asia15.1443.3367.625 star(s)
Fidelity Gbl Prop-0.0318.1633.81N/A star(s)
Fidelity Gbl Tech17.1297.59182.485 star(s)
Guinness Gbl Eq Inc7.6039.4766.182 star(s)
Guinness Global Energy17.7212.727.773 star(s)
Invesco Perp Gbl Emg Mkts8.4840.4646.694 star(s)
Jupiter India-10.2634.3779.175 star(s)
LF Morant Wright Nippon Yield13.9056.0388.665 star(s)
Legg Mason IFJaEq36.92155.25188.925 star(s)
Lindsell Train Japnse Eq29.3752.12124.355 star(s)
M&G Japan Smaller Cos14.7169.60122.303 star(s)
MI Chelverton UK Equ Grth20.6289.87-5 star(s)
Marlborough Eurpn Multi-Cap5.6485.43118.635 star(s)
Marlborough Global Bond-0.9415.9619.083 star(s)
Newton MA Gth8.6732.5862.663 star(s)
Old Mutual UK Dynmc Eq12.9658.27123.905 star(s)
Polar Capital Biotechnology20.6845.54-5 star(s)
Premier Optimum Income2.0520.4256.493 star(s)
Rathbone Global Opp17.5959.11103.304 star(s)
Sarasin Gbl Hhr Div3.6333.4958.092 star(s)
Schroder Global Equity Income16.8549.8583.082 star(s)
Schroder Hi Yield Opps4.8122.7641.315 star(s)
Schroder Income15.0027.2258.222 star(s)
Slater Growth12.0036.79114.974 star(s)
Smith & Williamson FarEstnIandG17.9264.7078.225 star(s)
Stan Life Inv GlSmlr Cmp25.0082.47114.835 star(s)
TB Evenlode Income9.0238.9473.985 star(s)
TB Wise Multi-Asset Income1.5334.3171.135 star(s)
TM Fulcrum DvfdCreAbRet3.28-0.94-2 star(s)
Unicorn Mastertrust10.8843.9275.805 star(s)
Unicorn UK Growth15.1973.32105.725 star(s)

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