Hidden Gems: Fund buyers’ picks

Richard Philbin, chief investment officer, Harwood Multi-Manager:

Category: Equity

■ MDO Pareturn Smead Value

Managed from Seattle, this concentrated multi-cap fund invests in unloved value stocks. Turnover is incredibly low and manager Bill Smead has more than 30 years’ experience in the industry. This Luxembourg-listed fund has just passed its second anniversary and at less than $25m (£18m) we believe has the ability to outperform for many years.

■ Matthews Asia Japan

This all-cap fund was launched in April 2015 mirroring an already established US mutual fund. It has a bias towards small and mid-cap firms with a market cap below $5bn. This 60-stock portfolio needs a three- to five-year time horizon to get the best from it.

Category: Absolute Return

■ H20 MultiReturns

Although it is more than £200m and comes with high volatility, this portfolio with a global macro approach provides a yield that is rare in an absolute return product. The performance objective is to achieve 1 Month Libor plus 4 per cent after fees. With a go anywhere mentality it can invest in cash, bonds, and equities.

■ Artemis Pan-European Absolute Return

Now managed solely by Paul Casson, this 18-month-old, £43m fund has delivered 10 per cent over the past 12 months. With an objective to provide positive returns in the long term, this predominantly large-cap fund has the ability to short stocks, thus creating the opportunity to protect when markets are falling.

Category: Fixed Income

■ Legg Mason Brandywine Global Income Optimiser

With roughly 75 holdings, this Dublin-listed fund aims to provide a high yield, while having a strong emphasis on capital preservation. It ideally needs a three- to five-year time horizon. The portfolio will invest across the credit spectrum and is not afraid to hold high levels of cash when market risk dictates.

■ Threadneedle UK Social Bond

This unique fund is not only for the socially conscious, as performance has been admirable. Simon Bond has run the vehicle since launch (December 2013), and with roughly 80 holdings provides a broadly diversified portfolio for a low annual management charge.

Category: Multi-Asset

■ MFS Meridian Diversified Income

This multi-asset fund is roughly 40 per cent equity and 60 per cent fixed income, and invests across five equally weighted buckets; dividend-paying equity, investment-grade debt, government securities, real estate securities and emerging market debt. A different manager runs each bucket and is overseen by James Swanson, from Boston.

■ LO Funds – Alternative Risk Premia

This Smart Beta fund was launched in summer 2014 and invests across equities, interest rates, credit, currencies and commodities through liquid derivative instruments. It employs long and short strategies to create a fund that is lowly correlated to traditional asset classes.

Category: Specialist

■ F&C Global Real Estate Securities

Reits and equities tend to be highly correlated in the short term. But over time the characteristics of Reits start to resemble bricks and mortar. Hence, this investment has to be given time to prove its diversifying ‘properties’. This global fund is able to use derivatives to help protect investors and enhance returns.

■ Guinness Asian Equity Income

This $20m Irish Oeic has been managed by Edmund Hariss since launch in December 2013. It is a concentrated portfolio in terms of names, with less than 40 holdings, but the top 10 account for less than one-third of total assets. This fund has delivered strong relative performance numbers since inception.

It is a force to be reckoned with in this specialist area Rob Morgan

Rob Morgan, pensions and investment analyst, Charles Stanley Direct:

Category: Equity

■ MFM Slater Income

Finding a decent-performing UK equity income fund that remains of a modest enough size to explore the lower reaches of the market-cap spectrum would seem a tall order – but this is such a fund. Mark Slater has a strong stockpicking record and he and his team are building a respectable record with this fund.

■ Marlborough UK Multi-Cap Growth

This fund is run by Richard Hallett, who is a member of Giles Hargreave’s team. Investors seem to have bypassed it, preferring to buy the more well-known Special Situations for exposure to the team. Yet this sub-£100m fund has a 10-year record that merits consideration for more well-rounded UK equity exposure.

Category: Absolute Return

■ Polar Capital UK Absolute Equity

Promising young manager Guy Rushton runs this unconstrained fund. He had a stellar 2015 with several of the year’s success stories such as Betfair and JD Sports in the long book. Mr Rushton’s first thought when initiating positions is how not to lose money, and this emphasis on capital discipline is reflected in a roughly neutral beta-adjusted net exposure.

■ Smith & Williamson Enterprise

This is a straightforward UK focused long/short fund that targets 8-10 per cent per year irrespective of market conditions. The emphasis is on stockpicking rather than macroeconomic calls. Encouragingly, it held up well against volatility in December, but has so far had a trickier start to 2016.

Category: Fixed Income

■ Eden Tree Amity Sterling Bond

Chris Hiorns and Robin Hepworth use this fund’s small size to participate in parts of the fixed interest market where larger peers could not hope to build meaningful positions, including permanent interest-bearing securities and charity bonds. There are risks of illiquidity in these areas, but the vehicle has historically remained of a stable size.

■ M&G Emerging Markets Bond

Claudia Calich runs this fund following her move to M&G from Invesco Perpetual in 2013 and brings plenty of experience to an already well-resourced M&G team. I believe it is a force to be reckoned with in this specialist area, but it currently has only modest assets under management.

Category: Multi Asset

■ Investec Diversified Income

This well-managed income fund is run by an experienced team but strangely remains small in size. Manager John Stopford has a straightforward approach, blending what he sees as the most attractive opportunities in equities, high-yield bonds, emerging market debt and listed property and infrastructure.

■ F&C MM Navigator Select

Rob Burdett and Gary Potter need little introduction to multi-manager aficionados but this, their most flexible of mandates, is still a small size. It resides in the IA Flexible Investment sector, where the managers can fully express their views without the need to conform to strict asset allocation or yield parameters.

Category: Specialist

■ Aptus Global Financials

Many investors still regard the financial sector as too difficult to value, even uninvestable, which gives experienced specialists like this fund’s manager, Johnny de la Hey, the opportunity to add significant value over the long term. His experience and the well-resourced team at his disposal could help make the most of this difficult-to-analyse area.

■ Charlemagne Magna Latin American

Clearly Latin America is out of favour with investors right now, but this is a fund to have on the radar when sentiment returns. The team’s approach of carefully analysing businesses across the market spectrum offers investors a sensible, focused way to access the area.

Ben Conway, senior fund manager, Hawksmoor Fund Managers

Category: Equity

■ Henderson Emerging Markets Opps

Henderson has brought in experienced EM investor Glen Finegan, formerly part of the successful team at First State. Having joined in January 2015 Mr Finegan has implemented his favoured “quality at a reasonable price” philosophy with a fund of a manageable size.

■ Fidelity Global Enhanced Income

This is the sister to the equally good Fidelity Global Dividend fund, both run by Dan Roberts, who we rate extremely highly. This vehicle generates a higher level of income via a sophisticated strategy of selling options on the stocks held in the fund – structured intelligently by derivatives expert David Jehan to avoid capping its capital performance.

Category: Absolute Return

■ Jupiter Absolute Return

James Clunie entirely restructured this fund when he took over in September 2013. Since then investors have benefited from the manager’s highly original thinking, profiting from a short on the Chinese currency long before this was consensus, resulting in impressive uncorrelated returns – particularly when equity markets have struggled.

Category: Fixed Income

■ Royal London Short Duration Global High Yield Bond

Azhar Hussain specialises in a niche area of the high-yield bond market – selecting bonds with fewer than three years to maturity but mispriced by the market. These are often smaller issues ignored by the larger fixed income funds. Liquidity is less of an issue given the short average maturity of the portfolio.

■ Babson European High Yield Bond

European default rates are low and should stay low thanks to the accommodative central bank. Combined with attractive spreads over government bonds, this makes European high yield an attractive investment. Babson has a large team and sees most value in secured bonds.

Category: Multi Asset

■ JPMorgan Global Macro Opportunities

This multi-asset absolute return fund accepts a higher degree of volatility than is the norm for similar funds. It also has a strong thematic approach to portfolio construction. In an era of highly correlated bonds and equities and low cost of capital, both these attributes make the likelihood of satisfactory uncorrelated returns more likely.

Category: Specialist

■ Wood Street Microcap Investment

UK micro caps are a valued part of the UK market. This space is pitted with potential landmines but this fund is run by one of the UK’s largest specialist teams, with an investment process led by the experienced Ken Wotton who selects only the highest quality stocks.

■ Polar Capital Biotechnology

Biotechnology is an extremely exciting part of healthcare, with a secular growth story that should be relatively immune to the many global macroeconomic headwinds. The sector has been caught up in the recent global sell-off and the opportunities for manager David Pinniger, who is an expert in biotechnology, are excellent – although expect volatility.