10th February 2016
Andy Parsons, head of investment research at The Share Centre, outlines six funds for investors to consider this ISA season…
AXA Framlington Biotech fund
For those investors seeking a very specific sectorial investment, the AXA Framlington Biotech fund may be worth consideration. Demographically, the world is continually changing, and emerging economies now need to tackle many of the diseases and illnesses that the Western world has faced for a number of years. Meanwhile, medical advancements, technology, understanding and analysis are developing at a greater pace than ever, as treatments become more specific and highly targeted.
By the very nature of being a sector specific investment, investors should be prepared for potential volatility as witnessed in recent months. Both the biotech and healthcare sectors have seen a strong sell off but we are still of the opinion that the overall investment theme has strength and longevity despite the recent underperformance. Given the uncertainty already experienced in markets in 2016 and with the potential for further rate rises in the US and a presidential election, markets are likely to remain volatile, however our needs and desire for advancements in treatments is not abating. An ideal potential long term investment if you can stomach the volatility.
CF Miton UK Value Opportunities fund
For investors seeking a fund with the potential to offer rewarding growth opportunities predominantly through UK exposure, then the CF Miton UK Value Opportunities fund’s management team have certainly forged a strong reputation. Fund managers George Godber and Georgina Hamilton seek to identify UK companies that they believe are trading at a significant discount to their intrinsic value, through a robust bottom-up stock selection process. They select companies with strong balance sheets and good cash flow, from across the market cap spectrum – although the majority of underlying investments will often come from mid- to small- cap companies.
Despite a relatively short investment history, this team have already proven their stock- picking ability and we believe they have the attributes and approach to continue doing so going forward. There are a number of funds that strive to adopt a deep-value investment strategy, and this fund is one that we feel truly delivers.
Fundsmith Equity fund
The Fundsmith Equity Fund is a true global offering, managed by one of the industry’s most respected leading managers and founder of the business, Terry Smith. With a long-term ‘buy and hold’ strategy, this highly concentrated fund is a shining example of high-conviction investing, unlike many others which aspire to this investment philosophy.
The fund has a preference for defensive companies that are resilient to change, technological innovation and who have existing advantages that are difficult to replicate. To feature in the fund, companies must have conviction in growth from reinvestment of cash flows and must not require significant leverage to generate returns. Due to the fund’s global nature and its focus on defensive companies, investors should not be surprised to find it contains a strong US presence and a raft of household company names.
Legg Mason Japan Equity fund
The Legg Mason Japan Equity fund has the accolade of being the top performing fund in 2015. The fund seeks to benefit from the economic and structural changes that Japan faces, as the promises and directives of Prime Minister Shinzo Abe’s ‘Abenomics’ policies continue to take hold. The portfolio will comprise between 25 and 60 stocks, with the lower number clearly indicating the strength and conviction the manager has in those companies.
Around 80% of the portfolio will be seen as core long- term holdings, whilst while the remaining 20% will be used for more short to medium term tactical investments. The fund has the flexibility to invest across the entire market cap spectrum, although generally focuses on those between £330m and £1bn. Investors should be prepared to accept a higher degree of volatility with this fund, but for those seeking the potential for strong growth, this fund may well be suitable for 2016.
Liontrust UK Smaller Companies fund
The Liontrust UK Smaller Companies fund is co-managed by the highly respected Anthony Cross and Julian Fosh. Their investment process is driven by what Cross and Fosh term the ‘Economic Advantage’. This involves a rigorous appraisal of prospective investments against a number of intangible criteria, which include ‘intellectual property’, ’distribution channels’ and ’repeat business’. The fund managers believe these measures form the bedrock of a company’s strength, and competitors will struggle to replicate this, creating high barriers to entry.
They also seek to identify and evaluate other key intangible strengths such as ‘franchises and licences’, ‘customer databases and relationships’, ‘procedures and formats’, ‘culture’ and ‘brand’. Given the nature of the market cap spectrum the fund faces into, the managers will only invest in companies for which there is a minimum director ownership of at least 3%.
Schroder European Alpha Income fund
Europe is another region we believe will continue to benefit from supportive monetary policy during 2016 – and you may therefore wish to consider the Schroder European Alpha Income fund. James Sym manages the fund, and adopts a cyclical approach to investing. As the economy progresses through the phases of recovery, expansion, slowdown and recession, the fund’s holdings will subsequently be aligned with those that perform best within these areas.
The portfolio will generally hold between 30 and 50 stocks, demonstrating the conviction the manager has in his stock selection. With the benefit of quarterly income distributions, this may well appeal to investors seeking to diversify their income streams.