Employees who make their own fund selections are often characterised as losers. But many have no problem getting to the funds IFAs would recommend. Paul Farrow reports
Ask a financial adviser which is their favourite corporate bond fund and the odds are that they will name Invesco Perpetual Corporate Bond fund, managed by the two Pauls – Paul Read and Paul Causer.
They are viewed as two of the best fixed interest managers in the industry and they have years of experience under their belt. Paul Causer, for instance, has clocked up more than 20 years’ fund management experience. He started out as a research and credit analyst with Japanese bank Asahi Bank and moved on to the group’s treasury department before he was given responsibility for the bank’s multi-currency investment portfolio.
The only question mark is whether this fund is the best fixed-interest option during the short-term. Brian Dennehy, at Dennehy Weller says: “Read and Causer are a highly experienced double act. In performance terms they sit somewhere between the safety-first M&G Corporate Bond fund and the dynamic Henderson Sterling Bond – my preference is the latter. But those nearer retirement date will feel comfortable with this.
Mark Dampier at Hargreaves Lansdown, says: “Invesco Perpetual corporate bond is the duo’s investment grade offering, although their preference at the moment is away from the defensive sectors which they believe to be overvalued and more toward the better yields on offer in the financial sector.”
Blackrock UK Equities
The fund is managed by Richard Plackett who launched his career in 1989 at 3i as a venture capitalist and small cap fund manager. After seven years, he moved to M&G where he began as head of the smaller companies desk and eventually took charge of the overall UK investment process. In 2002 Plackett joined Merrill Lynch, which is now Blackrock.
As head of UK small and mid cap investment, he is responsible for the Blackrock UK Smaller Companies and UK Special Situations funds. He implements a bottom up stock selection style and places emphasis on meeting with a company’s management directly.
Dennehy says: “This a decent fund tending to outperform both the index and the sector. No embarrassment holding this one.”
Skandia Deposit fund
This fund is Skandia’s number one seller – it is the default for investors who do not make any fund choice but this accounts for a small percentage of fund flows. Its aim is to provide a return, before charges and taxation, equivalent to the Sterling three-month money market rates and invests in a portfolio of deposits held in high quality approved credit institutions and in approved securities.
Skandia said that some investors use it as a transition fund before they decide which other funds to switch their investments into while others hold it as a core part of a balanced portfolio.
Adrian Walker, pension specialist at Skandia, says: “Interestingly, although it is still the highest selling fund we have seen it reduce in size significantly this year. During 2008 and 2009 the fund saw huge inflows as a result of both new investment and switches from other funds. Investors were clearly seeing a safe haven from the extreme market volatility we saw at the time. This year, as a result of low interest rates on cash and improving stock market performance, we have seen investors switch out of the deposit fund into portfolios.”
Blackrock UK Special Situations
The fund is in its twentieth year and is also managed by Richard Plackett. The fund aims to produce long-term capital returns from a portfolio of 50 to 70 UK public companies.
Like most special situations funds, a bias towards smaller companies means higher levels of volatility, although even with a fairly concentrated portfolio, the fund’s volatility has remained in line with the broader benchmark over three and five-year periods.
Compared to its FTSE benchmark, the fund currently has relatively high exposure to both technology and industrial stocks, while remaining underweight in the consumer, financial and oil and gas sectors. The fund reduced its position in BP during the first quarter.
Dennehy says: “This has fantastic long-term performance, but when it falls, it falls hard. Not for the faint hearted, but one for younger regular savers.”
Dampier says: “Plackett has been very bullish on his portfolio all year. The fund’s hunting ground tends to be amongst the SMEs, where is focus has been on world- beating firms displaying strong growth in the industrial and technology sectors. Much of the revenue of these companies is coming from overseas so they are far less reliant on the UK for their profits.
Commercial property is also beginning to attract attention again. It was the third most popular sector according to the Investment Management Association in June. Property prices may have risen steadily over the past year, but there have been signs that these increases are running out of steam.
Yet this is a sector that had been badly tarnished by the latest property crash that left many investors who had turned to the asset class for the first time nursing big losses, but this fund with Don Jordison, at its helm has won plaudits
Just last month Hargreaves Lansdown put Jordison’s UK Property fund on its prestigious Wealth 150 list – the first ever such fund to make it onto the coveted list.
Jordison believes that property is an important part of a portfolio. “Anywhere from 5-25 per cent can be a beneficial exposure,” he says. Shrugging off the financial crisis, he recently said that the collapse in property values was a “good thing”.
Dampier says: “Jordison’s team are very highly regarded, unusually for a property team they tend to pursue secondary rather than prime property, where they tend to find better yields and turnaround situations, mostly away from the London area. Having said that high cash flow has hindered performance this year.”
This international fund invests almost entirely in equities with typically around 50 per cent exposure to UK shares. Though a stock picking fund, the process also incorporates investment themes from Newton’s strategy group such as globalisation. Its steady performance, which sees it sit in the second quartile suggests it does what it says on the tin and meets its place as a popular choice for pension fund investors.
Dennehy says: “Typically we don’t recommend balanced or managed styled funds as they are either too expensive or mediocre at best, or both. Having said that we have had a small number of long term clients in the Newton Managed fund via Scottish Widows pension contracts, and have been pleasantly surprised – there are always exceptions.”
However, the analysts at Bestinvest recently said: “Newton have a strong global team and a high quality process we have higher conviction in other international equity funds.”
Around four years ago, some people in the fund management fraternity touted diversified growth funds as the potential solution for defined contribution pension schemes. Here was a style of fund that aimed to deliver equity-like returns, but at a fraction of the volatility by using a multitude of assets including private equity, commercial property, commodities and infrastructure.
Schroder Diversified Growth
Schroders was also an early adopter of diversified growth and the objective of the Schroder Diversified Growth Fund is targeted return of RPI plus 5 per cent per annum over a five to seven year period It says that it initially embraced the concept for the defined benefit market, but soon realised that it could prove the perfect antidote for the default option.
Earlier this year Stephen Bowles, head of DC at Schroders, said: “It is impossible to overstate the importance of the default fund. There is a chronic shortage of people wanting to save – many would rather think about where they are going to take their summer holiday than worry about their pension. They simply tick the default box and cross their fingers that passive funds will deliver. We believe diversified growth is the ideal alternative approach.”
Skandia is a popular group among financial advisers yet one wonders why this £500M multi-manager fund is a popular buy among employees. Its performance has been substandard over the short and long-term. It has delivered fourth and third quartiles performance over the longer-term and there is good reason why the group is looking to rejig the fund.
Ryan Hughes, the fund’s manager will now invest in “alternative” strategies to act as a “useful diversifier away from the traditional holdings of equity, bond and property.”
Hughes says: “More generally over the past 18 months we have made significant manager changes to the managers of the UK equity element of the fund. This exposure is now managed by renowned investors such as Richard Buxton at Schroders, Alastair Mundy at Investec, Ashton Bradbury’s mid and small cap team at OMAM and Audrey Ryan of Aegon.
Invesco Perpetual High Income
This whopping £9.9bn fund is high on the agenda of many investors. It is managed by Neil Woodford, who has gained a reputation as one of the country’s premier managers and his funds need little explanation.
He is consistently at the top of the tables and is never afraid to make bold moves into areas rivals avoid. He focuses on valuation and, by searching for those stocks that he believes are undervalued. “I am essentially investing where the risks are already in the price. A long term approach is also an integral part of my philosophy,” Woodford said.
He has shunned banks and oil companies in the past and remains pessimistic on the wider economy. He recently said: “The economic outlook is tough and will stay so for some time. But the current yield available on selected stocks, combined with dividend growth, can provide decent returns. If you can invest at very low valuations, returns could be even more meaningful.
Dennehy says: “Woodford has been running the biggest and longest bet in fund management history, going heavy into tobacco and utilities over a decade ago – and it’s not done too badly! But what happens when Neil isn’t there? In a bull run he’ll underperform, but a safe pair of hands when markets are under pressure.”
JPM Life Global Dynamic
The JPM Life Global Dynamic Fund is an aggressively managed long-only global equity strategy, which invests wherever the best opportunities are in the global stock market irrespective of benchmark weighting.
The fund is heavy on investment process – using both behavioural finance theory and fundamental research – and it aims to generate performance of 4 per cent above the MSCI Index over a over a full market cycle.
The fund has consistently outperformed the MSCI World Index since its launch in December 2000 while displaying low volatile characteristics – it has outperformed its benchmark in 75 per cent of quarters over the past decade.