Troy Trojan, Liontrust Special Situations and JP Morgan Emerging Markets are some of the funds that investors might consider for a more cautious play on the growth style during the current market rotation.
Growth funds have been in vogue with markets for several years, with many generating stella returns in the low rate, quantitative easing environment. But these same portfolios have also been hit hardest but the recent swing into value and cyclicals.
With that in mind, Trustnet asked market experts for their steadier growth picks.
AXA Framlington UK Select Opportunities
The first fund is a “stalwart of the UK fund scene”, run by a team with “growth investing at its heart”, according to Gill Hutchinson, research director and co-founder of The Adviser Centre. The AXA Framlington UK Select Opportunities fund is headed by FE fundinfo Alpha Manager Chris St John, part of the Framlington Equities UK team.
“They describe themselves as having a ‘growth at a reasonable price’ approach,” Hutchinson said.
“And as a result, the fund has a moderated growth character when compared to some of the purer growth strategies in the peer group.”
The fund looks for companies that will produce above-average earnings and cash returns on invested capital while having good company management and competitive positioning in their respected field.
Hutchinson said: “Given the nature of the mandate and approach, the fund is more likely to thrive when growth companies are in the vanguard and more likely to struggle when large-cap companies lead the market and/or when lowly-valued and cyclical companies are in vogue.”
Over the past five years AXA Framlington UK Select Opportunities has underperformed both its IA UK All Companies peers (42.57 per cent) and its FTSE All Share benchmark (38.19 per cent), making a total return of 33.03 per cent.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Holding an FE fundinfo Crown rating of four, it has an ongoing charges figure (OCF) of 0.83 per cent.
JP Morgan Emerging Markets
Next is the £1.5bn JP Morgan Emerging Markets Investment Trust, run by Austin Forey.
According to Teodor Dilov, fund analyst at interactive investor, Forey has a “wealth of experience” in the emerging markets asset class. Indeed, he has managed JP Morgan Emerging Markets since 1994.
The trust has a bias towards domestic consumption growth, Dilov said, leading to overweights in consumer staples, financials and communication services relative to its MSCI Emerging Markets benchmark.
In the latest half-yearly commentary, Forey said that while there is reason to exercise some caution after the market turbulence in 2020, “it is not an exaggeration to say that the opportunities we see at the level of individual companies are as great as at any time in the last three decades, if not greater”.
The trust has had a strong performance over the long term, generating the second highest returns of the IT Global Emerging Markets sector over one, three, five and 10 years. It’s made 82.91 per cent total returns over five years, beating both the sector and benchmark.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
JP Morgan Emerging Markets holds an FE fundinfo Crown rating of four and has an OCF of 1 per cent. It is currently yielding 1.1 per cent with no gearing and running at a 2.5 per cent discount.
Troy Trojan
Next is Sebastian Lyon’s Troy Trojan fund, “one of the class acts in the investment world”, according to Ben Yearsley, co-founder and director of Fairview Investing.
FE fundinfo Alpha Manager Lyon and deputy manager Charlotte Yonge apply the same investment case as all funds managed by Troy Asset Management, placing capital preservation at the core. In Trojan, this is done by building a portfolio based around quality blue-chips, index-linked bonds, gold and cash.
“Nothing clever or complicated,” Yearsley said. “They move the asset allocation around depending on their economic outlook. The default is to buy equities and only invest elsewhere if they don’t look attractive. Buying quality, low capital-intensive businesses is what they seek.”
According to Yearsley, this makes it is it an “ideal long-term core holding in any portfolio”.
Over five years Trojan underperformed the IA Flexible Investment sector, largely because its cautious positioning.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
It has an OCF of 1.01 per cent.
BNY Mellon Long Term Global Equity
“The recent performance of certain growth strategies may have left some investors feeling giddy but there are options for those who still seek growth, but would like to meet that objective at a more sedate pace,” said John Monaghan, head of research at Square Mile Investment Consulting and Research.
His pick is the £1.5bn BNY Mellon Long Term Global Equity fund, run by BNY Mellon’s affiliate Walter Scott & Partners. The portfolio follows a “simple” investment process, seeking high quality companies and holding them for the long-term irrespective of the FTSE All Share benchmark.
The fund will lag when markets are more “exuberant”, according to Monaghan, but will provide some defensive stability during times of market stress.
Over five years BNY Mellon Long Term Global Equity has outperformed both the FTSE All Share and IA Global sector, with a total return of 103.17 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The four FE fundinfo Crown rated fund has an OCF of 0.80 per cent.
TB Evenlode Global Income
The penultimate pick, TB Evenlode Global Income, is currently underweight the US and overweight UK and Europe a positing which should “stand the fund in good stead compared to global peers if the US market comes off the boil”, according AJ Bell analyst Laith Khalaf.
Khalaf said the fund looks for quality stocks that benefit from compounding growth, high profitability, low capital intensity and low leverage. The income mandate adds a need for growing dividend payments over time creating a concentrated, low turnover portfolio.
Ben Peters and deputy manager Chris Elliott have run TB Evenlode Global Income since launch in 2017. Since then it’s outperformed the IA Global Equity Income sector but has lagged the MSCI World index.
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund has a OCF of 1.90 per cent.
Liontrust Special Situations
The final pick is the £6bn Liontrust Special Situations fund, which achieves consistent outperformance with below average volatility. These characteristics are “hugely attractive”, according to Jason Hollands of Tilney Investment Management Services.
Indeed, out of the entire IA UK All Companies sector the Liontrust Special Situations fund had the third best 10-year cumulative volatility.
The fund is run by two FE fundinfo Alpha Managers, Anthony Cross and Julian Fosh, who apply Liontrust’s proprietary ‘Economic Advantage’ process, which seeks out companies with one of three intangible assets: intellectual property, strong distribution or recurring business (at least 70 per cent of annual turnover).
These intangible assets provide barriers to competition, protect margins and are capable of reaping cash flow returns in excess of the cost of capital.
This process will steer the fund away from the cyclical businesses that might do well during the post-pandemic recovery phase, Hollands added, but he is still optimistic on the fund.
The five FE fundinfo Crown-rated fund has outperformed both the IA UK All Companies sector and the FTSE All Share over five years, returning 72.69 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
Liontrust Special Situations has a OCF of 0.82 per cent.