Five new funds to watch in 2014
Investing your savings in a trusted and safe pair of hands is paramount to growing your wealth – and for peace of mind for some. Funds run by star managers with successful careers that span decades at well-established firms are naturally an appealing home for your cash.
Many of the most successful managers are, of course, the most experienced ones. Nigel Thomas of Axa Framlington is one big name known for his consistently good performance.
But what about the lesser-known and/or newer investment companies and their managers? Our experts say there are many lesser-known fund management groups that are worthy of our money. So sticking with well-known names and brands could mean missing out on some bumper returns. We discover some of the names that should be on your radar.
UK fund boutique Miton was put firmly on the map when respected fund manager Gervais Williams joined as managing director in 2011, having previously managed money at Gartmore.
The company was boosted further with the acquisition of Psigma last year, which included veteran UK equity income fund manager Bill Mott and industry stalwart Ian Chimes.
Patrick Connolly at Chase de Vere says: "The growing reputation of the firm has enabled them to recruit more good-calibre people including David Barron at the end of last year, who previously headed up the investment trust business at JPMorgan. It is likely there will be more investment trust launches to come."
Mark Dampier at adviser firm Hargreaves Lansdown says: "This is a nice fund management group and manager George Godber, who manages the UK Value Opportunities (UKVO) fund is most definitely on my list of up-and-coming managers." The UKVO fund was launched in March 2013 and has since returned 28% compared to a benchmark average of 14%.
Hannah Edwards at BRI Wealth Management says she likes the Miton Smaller Companies fund, launched in December 2012. It has returned 68% compared to a 30% benchmark average.
She explains: "The fund, run by Gervais Williams, has had a fantastic run. The small size of the fund and the manager's focus on truly smaller companies has enabled it to invest in some fantastic companies that other funds couldn't or wouldn't want to invest in."
MAJEDIE ASSET MANAGEMENT
Majedie Asset Management, established in 2002, is an investment boutique that specialises in equities, primarily for institutional investors. Majedie currently has four funds accessible to private investors: the UK Equity fund, the UK Focus fund, the UK Income fund and the Tortoise fund.
Gary Potter, co-head of F&C's multi-manager team, likes the UK Income fund run by Chris Reid which is a newcomer to the sector, having only launched in December 2011. It has returned 26% over one year, compared with a sector average of 14%.
He says: "It's an outstanding fund and definitely one to consider for those who like equity income funds."
Darius McDermott at Chelsea Financial Services highlights the Tortoise fund which is run by Matthew Smith and Tom Morris. It has returned 22% over one year and 45% over three years but currently it is closed to new investors to ensure it doesn't get too large. It is already at around £900 million.
McDermott says: "It's a good performing long/short equity fund, which is popular among multi-manager funds. It is soft-closed at the moment – although the fund has been soft-closed and reopened in the past to control flows better.
"Private investors should be wary of going in blindly simply on the back of past performance and make sure they understand this fund which uses complex techniques to make gains."
HERMES FUND MANAGERS
Hermes has not marketed funds to individual investors - only to large companies. It has, however, launches some funds for private investors, which have been noted for their good performance by experts who are interested in emerging markets.
Potter says: "Aberdeen and First State have been household favourites for those who want to invest in emerging markets. But these are no longer accessible because the funds got too big and they decided to close to new investors. Hermes has a very appealing offering here."
According to data analyst FE Analytics, in 2013 the Hermes Asia ex Japan fund was the top performing vehicle in the IMA Asia Pacific ex Japan sector, while the Hermes Global Emerging Markets fund was the second best performer in the IMA Global Emerging Markets sector.
Over one year, the Asia fund has returned 25% compared to a sector average of 3%.
Potter adds: "The numbers are cracking. Jonathan Pines has a unique style that is completely flexible and adaptable to any market conditions. He is not high yield or mid cap – he can invest in what he deems is attractive across the market."
Somerset Capital, a boutique manager, was formed only seven years ago and its focus is also on emerging market equities. Rob Gleeson at FE Research says the investment house is "making a real name for itself".
He likes Somerset Emerging Markets Dividend Growth, managed by Ed Lam, which has lost 7% over a year compared with a sector average of a 10% loss; but over three years returned 10%.
Gleeson says: "The fund is one of a small number in its sector to play the dividend card. This is a process we like and it has proved its value in several different strategies.
"The fund was launched in March 2010, just before a steep decline in the stockmarket. It has coped very well though, delivering more than 18% compared to a slight loss from the IMA Global Emerging Markets sector average. It is well ahead of the better-known Aberdeen Emerging Markets Equity fund over the period, which has returned only 12.2%.
"We like the fact that it protects well against the downside and see it as a good option for a long-term investor with a cautious eye on the short term. A yield of 3% is also very attractive."
Connolly adds: "The geographical breakdown of Somerset Capital's funds is usually different to competitor funds, without a huge weighting in the BRIC (Brazil, Russia, India and China) countries, meaning they can provide good diversification alongside other emerging markets funds.
"Currently, the emerging markets have gone sour and while this can create investment opportunities for Somerset to exploit, it also means that investors are less likely to invest. However, when emerging markets do bounce back they should be well positioned to make further strides forwards."
Connolly also likes Somerset Emerging Markets Dividend Growth.
WOODFORD INVESTMENT MANAGEMENT
Neil Woodford, the country's best-known fund manager who looked after more than £20 billion of savers' money at Invesco Perpetual, is to launch a new investment management company in May. Woodford Investment Management is being created on the back of an existing business – Oakley Capital.
Woodford's departure from Invesco Perpetual, where he worked for 25 years across numerous portfolios, was announced in October. Analysts expect billions of pounds to follow him from private and professional investors who will be keen to follow Woodford's new ventures given his sterling track record and stellar returns. Oakley does not currently run a division through which private investors can access mainstream equity funds.
Under his own brand, Woodford is expected to launch an equity income fund and run it in the same style as his old ones – the Invesco Perpetual Income and High Income.
Dampier says: "I expect this to be a very popular choice for loyal investors to Neil and imagine he will start off with upwards of £1 billion – unheard of for any typical new firm – and raise more than £5 billion very quickly. I expect it will also attract new money as well as that from those that have invested with him before. More funds will follow the initial income fund when it has bedded in."
Picking a fund
There are countless websites offering research and guidance on what savers should be investing in. Brokers including Hargreaves Lansdown (hl.co.uk), Chelsea Financial Services (chelseafs.co.uk), Interactive Investor (iii.co.uk), Fundexpert.co.uk and Bestinvest (bestinvest.co.uk) all offer fund research, guidance and performance as well as individual analysis on many funds including newcomers to the market.
They also provide preferred fund lists which can help narrow a search - a valuable tool since there are more than 2,500 funds available to choose from.
They also provide information on managers and companies. Alternatively, you can find an independent financial adviser at unbiased.co.uk to help you compile your portfolio.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Investment funds that invest in other investment funds from a wide range of asset managers and are often referred to as funds of funds. Some multi-manager funds only invest in the funds of the investment house providing the fund of funds and these are known as “fettered”. An “unfettered” multi-manager fund is free to invest in what the fund manager believes are the top performing funds from across different markets and industries. Investing in multi-manager funds means your risks are spread across geographical regions and industry sectors but it also adds another layer of charges and some multi-managers also levy an out-performance fee.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
An acronym, which stands for Brazil, Russia, India and China; countries all deemed to be at a similar stage of advanced economic development. The term was coined in 2001 in a report written by Goldman Sachs director Jim O’Neill who speculated that, by 2050, these four economies would be wealthier than most of the current major G7 economic powers.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).