Ryan Hughes, head of active portfolios at AJ Bell, analyses the funds that could be considered by ISA investors with three different attitudes to risk and one for income seekers:
Lower Risk - M&G Absolute Return Bond
“Traditionally, low risk investors might have looked at fixed interest investments, but with the prospect of higher interest rates which are bad for this asset class, selecting a low risk fund is now a little more difficult. One option may be to look at an ‘absolute return’ strategy that looks to make money regardless of market conditions.
“The M&G Absolute Return Bond fund seeks to deliver steady positive returns, with a specific focus on managing volatility through adopting a flexible investment approach. In particular, the fund targets a total return of 2.5% above the 3-month GBP Libor rate per annum. The fund is co-managed by the experienced Jim Leaviss along with Wolfgang Bauer and benefits from the huge support of the wider fixed income team at M&G. The fund aims to be highly diversified providing a broad range of global bonds, government bonds and currency and is very focused on risk management to try and avoid capital losses. For those hoping to protect capital or just eke out a slightly better return than cash, this fund could be interesting.”
Medium Risk - FP CRUX European Special Situations
“The European economy has continued to improve over the last year and now clearly has momentum with companies reporting improvements in consumer sentiment across much of the region. With some major political issues out of the way, notwithstanding Brexit, the picture looks better for Europe than it has done for some time.
“FP CRUX European Special Situations is a European (ex UK) equity fund which seeks to outperform the FTSE World Europe ex UK Index through a predominately bottom-up research process. Fund manager Richard Pease has over three decades of experience and looks to identify stocks which display four characteristics: high quality, strong management teams, well capitalised businesses and low valuations. The resulting portfolio will look very different to the underlying benchmark and typically comprises between 50-60 positions utilising the full scope of the market cap spectrum. Should the European economy continue to expand, this fund could well be nicely placed to capture it.”
Higher Risk - Invesco Perpetual Asian
“Asia has been a strong performer in recent years as Chinese growth fuels demand in the region. With a young workforce and a hunger to succeed, Asian economies have proven to be vibrant and dynamic which has created some fantastic investment opportunities.
“The Invesco Perpetual Asian fund looks to outperform the MSCI AC Asia Pacific Ex Japan Index predominately through a bottom-up research process focusing on contrarian ideas. Lead fund manager William Lam has been part of the team since 2006 and therefore has great experience of investing in the region. Ultimately, the fund manager is seeking out companies that are trading at significant discounts to their estimated fair value, targeting a double digit annualised return from each idea. The fund is managed with a contrarian mind-set and as such can deviate substantially from the underlying benchmark; the resulting portfolio typically comprises 50-70 individual names. For investors looking for high growth potential, this fund has the potential to benefit strongly from the continued expansion of Asian economies.”
Income – Artemis Global Income
“The generation of income remains a key requirement for many investors and many opportunities now exist to do this away from UK equities. Investing globally offers access to a huge range of dividend paying companies and will also compliment an existing holding in a traditional UK equity income fund.
“Artemis Global Income is a global equity fund that looks to outperform the MSCI AC World Index over time and is focused on delivering both a rising income and capital growth. The fund operates in a totally unconstrained manner meaning that positioning both on a geographical and sector basis can move around significantly. Manager Jacob de Tusch Lec looks to blend a strong bottom up focus with a top down macro view of the world and is looking for companies that offer a strong free cash flow yield where dividend payment and dividend growth are a strong part of the company valuation. The fund typically consists of a well-diversified range of companies with between 80-100 names and to ensure diversification, there are limits of 5% at an individual stock level while each industry weight is limited to 15%. The manager thinks of the portfolio in three distinct areas with 40-60% of the fund allocated to core positions that have a good yield but are seen as lower risk, 20-40% in growth companies that offer a high level of dividend growth while 10-30% is reserved for special situations. Overall, the fund offers a pragmatic approach to investing across the world and benefits from an experienced manager who has run a wide range of different investment strategies.”