The fund has built up a long track record of outperformance, while its aim of providing “access to a high-risk asset class at lower-than-benchmark risk” has remained unchanged, the manager notes.
Ms Jones has 134 holdings consisting of ‘steady-Eddie’ stocks, which function as ballast when the market is declining. They enable us to have a lower beta and standard deviation than our benchmark. The mispriced growth stocks, as well as the turnarounds, enable us to generate positive excess return over time.”
She adds that as bottom-up investors, she would like to say that the decision-making is driven entirely by company analysis. “However, it is impossible to completely disregard the macroeconomic environment,” she concedes. “We need to understand where we are in the economic cycle and the effect that can have on different sectors. At the end of the day we will buy stocks that are not favoured by the economic climate if the fundamentals are strong.”
When the manager purchases a company, it will always be in the bottom 20 per cent of the North American market, in terms of market capitalisation, the fund’s key investor information document states.
Ms Jones points out that she has recently added to the portfolio’s energy position, noting: “We are still underweight but less so than we had been throughout much of 2014.”
She is beginning to find some “interesting opportunities” as a result of the market “possibly having overshot on the downside”. She says: “Our producer durables overweight has been reduced as several stocks have reached target prices. Consumer discretionary has moved from a near market weight to underweight in the past year as valuations have become stretched in that space in our view. The same can be said of the consumer staples sector.”
The key investor information document shows the fund has been ranked at the riskier end on a risk-reward spectrum, sitting at level six out of a possible seven. The ongoing charge on the class A accumulation – which is the main retail share class – is 1.66 per cent.
The fund has produced top-quartile performance in the Investment Association North American Smaller Companies sector across one, three and 10 years, data from FE Analytics shows.
It returned an impressive 200.71 per cent across 10 years to February 26, compared with the average sector performance of 177.46 per cent. The fund’s performance dropped to fourth quartile across five years but has since recovered. In the past 12 months to February 26, the portfolio has delivered a 19.04 per cent return against the sector’s rise of 13.98 per cent.
Ms Jones observes that stock selection was behind its “extremely strong” performance in 2014. Healthcare was the only sector where stock selection detracted from performance, and “only modestly” in this case.
She remarks: “Our underweight in the biotechnology group was the biggest source of the shortfall. This industry is difficult for our style as longer-term holders will recognise.”
US investors may be wary of a strengthening dollar coming into 2015, as well as the possibility of a rate hike by the Federal Reserve at some point. She is cautious on the outlook for the year ahead, acknowledging that earnings estimates continue to come down, although not as dramatically as in the large-cap space.
“While we think small cap is nicely positioned for investors in the US due to a higher exposure to revenues from the US [compared with large-cap] and at least, in theory, a smaller exposure to the effects of a rising dollar,” she says. “However, valuations remain a concern. They have been much higher, but if we had our way they would be lower than they are currently.”
On the prospect of an interest rate rise this year, Ms Jones remarks: “There is general discussion of when the Federal Reserve will raise rates and we are well positioned for that as our financial holdings tend to be in asset-sensitive banks and other less interest-sensitive names.”
Ellie Duncan is deputy features editor at Investment Adviser
EXPERT VIEW
Darius McDermott, managing director, Chelsea Financial Services
Managed by Jenny Jones since 2002 out of New York, this fund has outperformed the peer group more often than not. Jenny’s stock-picking ability, combined with her value basis, has had a material positive impact on the fund’s performance. This portfolio tends to be relatively better in a falling market compared with its peers.
