As we reach the end of 2015, the Share Centre’s Andy Parsons shares his views on the three funds that could thrive in 2016.
Mr Parsons, head of investment research at the Share Centre, said 2015 has proved a challenging year for investors, as strong early gains in many regions and sectors have nearly been wiped out as the year comes to an end.
Looking ahead to 2016, he said markets are likely to once again remain relatively flat, albeit there will undoubtedly be periods of strong growth followed by sharp corrections.
“We have just witnessed the Fed raising interest rates for the first time since 2006 and as we see tightening occur in the West, we are continuing to see pressure on Europe and Japan to ease the purse strings further as they battle to stimulate growth.”
The Share Centre’s top three fund tips for 2016 are:
• Legg Mason Japan Equity fund
Mr Parsons said this fund has the accolade of being the top performing fund for 2015. “It seeks to benefit from the economic and structural changes that Japan faces, as the promises and directives of ‘Abenomics’ take hold.”
The portfolio will vary between 25 to 60 stocks, and around 80 per cent of the portfolio will be seen as core long term holdings.
Mr Parsons said the lower number of stocks indicates the conviction the manager has in those companies.
“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.”
• Schroder European Alpha Income fund
When looking at Europe, Mr Parsons said Schroder’s fund was likely do well over the next 12 months.
“Managed by James Sym, the fund will always adopt a cyclical approach to investing, meaning that as the economy progresses through the phases of recovery, expansion, slowdown and recession, the holdings will be aligned to those which perform strongest within these.”
The portfolio will generally hold around between 30-50 stocks. It distributes income quarterly, which Mr Parsons said may appeal to investors seeking to add diversification to their income streams.
• Liontrust UK Smaller Companies fund
Managed by Anthony Cross and Julian Fosh, Mr Parsons said the investment process of this fund is driven by what they refer to as the ‘economic advantage’ process.
“[This is where] the managers seek to identify prospective investments, having undertaken a rigorous appraisal against a number of intangible criteria and classify these as tier 1 intellectual capital.”
He said this criteria are the “bedrocks to a company’s strength” and which competitors will “struggle to replicate” and therefore naturally create high barriers to entry.
“Alongside the above, and given the very nature of the market cap spectrum into which the fund faces, the managers will only invest in companies where there is a minimum director ownership of at least 3 per cent.
“This fund may well be suitable for those investors seeking to add a slightly punchier and riskier UK alternative to a more traditional UK blue chip holding.”
katherine.denham@ft.com
