ii Super 60 investments

Ollie Beckett has run the trust since 2011 and seeks to achieve the trust’s growth objective by investing primarily in small and medium-sized companies. With a diversified portfolio of around 120 holdings, he is prepared to venture well down the size spectrum in search of companies with exceptional growth potential. He looks for undervalued companies that can either deliver substantial growth or where there is potential for improvements in profitability through self-help.

He and the rest of Janus Henderson’s European equities team generate their own investment ideas and spend a lot of time meeting company management teams. Beckett believes a selling discipline is vital in small company investing and does not hesitate to take profits, with individual holdings usually representing no more than just over 2% of net assets.

October 2020

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Fidelity China Special Situations focuses purely on China – a market that manager Dale Nicholls believes is too big to ignore. He thinks that one day the sector will be Asia ex China rather than Asia ex Japan, because the long-term possibilities for China are so great.

Nicholls has managed the trust since 2014, presiding over a considerable improvement in its performance. This is partly due to an improvement in investor sentiment towards China and partly his focus on ‘new’ China – investing in areas of the market related to the country’s modernisation. He likes small and medium-sized companies, where he believes lower levels of research leads to more mis-pricing opportunities.

Since 2016, Nicholls has been able to invest 10% in unlisted companies, up from 5%, amid a trend for Chinese companies to list on a public stock exchange after their development has progressed.

The ability to gear (borrow), and the manager’s ability to take short positions in single companies and indices, also serve to increase its risk profile, so it is best suited to more adventurous investors willing to take a patient approach.

October 2020

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Scottish Mortgage is a FTSE 100 company and by far the largest investment trust. It is the flagship fund of Baillie Gifford, the Edinburgh-based investment manager which promotes ‘actual’ investing – deploying cash into tangible, sustainable activities that allow companies to grow and prosper.

James Anderson has run this trust since 2000, with Tom Slater becoming co-manager in 2015. Anderson is a long-term believer in the power of technology and is fiercely committed to running a high-conviction portfolio of companies that will change the world. The trust usually holds around 85 holdings, with the top 10 accounting for about half the total assets. He warns that such an approach can result in periods of underperformance but expects to be judged over at least five and preferably 10 years.

The duo believes many of the most exciting companies now wait until their fastest growth period is over before seeking a stock market listing. To that end, they can invest up to a quarter of assets in unquoted companies. With this in mind, the trust is not appropriate for lower-risk investors.

Economies of scale have seen the trust’s ongoing charges fall to an incredibly low 0.36%. For the past five years, its shares have tended to trade at a small premium to net asset value but can sometimes be picked up at a modest discount.

October 2020

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The smaller companies team at Janus Henderson benefits from leadership of the experienced Neil Hermon, manager of the trust since 2002 and an investor in UK smaller companies since 1993. Under his management, the trust has regularly outperformed its benchmark, the Numis Smaller Companies index, and 2019 was no exception.

Hermon’s main focus is growth stocks at the right price, often described as ‘growth at a reasonable price’ (or Garp) investing. He finds his investments mainly by meeting companies and assessing the managers and their strategy. He looks for ‘the four Ms’: model (a strong business model); management (managers with a good track record); money (strong balance sheets and cash flow); and momentum (good earnings momentum). He runs a well-diversified portfolio of more than 100 holdings and takes a long-term approach, holding stocks for more than five years on average.

Although the trust benefits from merger and acquisition activity, Hermon says he does not buy stocks with that in mind, though he admits it is nice if it happens. He is more focused on buying companies he believes can grow in the future.

September 2020

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This fund has a very well-diversified portfolio of almost 250 stocks, with one third of assets featuring in the largest constituents of the UK stock market. Hugh Sergeant, manager since its launch in 2008, has an impressive track record over three decades of investing.

The fund invests in recovery stocks – good businesses that are currently experiencing below-normal profit levels – which are depressing their valuations. To warrant inclusion in the portfolio, a company must have capabilities to help itself out of this predicament. Sergeant adds holdings at fire-sale prices in volatile times. This increases the possibility of long-term capital gains, as well as a performance profile that deviates significantly from the benchmark FTSE All-Share index.

Head of UK equities at River & Mercantile, Sergeant believes it is crucial to meet company management first to ensure they are the right people to set their company on the path to recovery. The investment team has developed an individual philosophy and process called PVT: potential, value and timing. It is this quantitative process that underpins their investment choices. The nature of the fund is to find stocks that have been beaten up by the market, so sentiment could continue to go against them. As a result, investors in this fund should expect to encounter a bumpy ride from time to time.

In August 2020 Sergeant argued 10 key tests have been passed for value to make a comeback. Read the article

September 2020

Mobius Investment Trust provides actively managed exposure to the emerging and frontier markets investment theme, while also focusing on environmental, social and governance (ESG) issues. The strategy was launched in 2018 and invests in a highly concentrated portfolio of around 25 to 30 stocks for the long-term (five plus years). The managers, industry veteran Mark Mobius and Carlos von Hardenberg, have a long and successful track record prior to 2018 of managing mandates in this specialist area of the market previously at Franklin Templeton. The trust is benchmark unconstrained and the portfolio is constructed on the merits of individual stocks rather than a particular sector or region.

The investment process is well-defined and constructed from company screening and analysis based on a number of proprietary models as well as meetings with company executives. Managers put strong focus on quality and select only companies that have demonstrated stability of cash flows and revenues tested through all market conditions. In addition to the growth opportunities and diversification benefits, it is their belief that due to the lower ESG standards in emerging and frontier markets, there is a strong potential for the fund to impact positive change.

Investors should also be aware of the risks involved with this strategy – smaller companies within the emerging and frontier markets could have more volatile returns compared to the broader market. Therefore, the trust could be best utilised as a satellite growth engine to complement a well-diversified portfolio.

September 2020

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JP Morgan Emerging Markets is one of the largest global emerging market trusts.

Experienced emerging markets investor Austin Forey has run the trust since 1994. He buys well-managed companies at sensible prices and has a strong record in selecting mid and larger sized companies. He takes a long-term approach and focuses on businesses that have attractive earnings, strong balance sheets, excess returns on capital, sustainable competitive advantages, an ability to grow market share and potential to generate significant shareholder value.

Forey typically has a bias towards domestic consumption growth and the portfolio tends to favour financials and information technology.

The board of JP Morgan Emerging Markets tends to defend a 10% discount.

October 2020

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Diverse Income, which was launched in April 2011, can invest in UK companies of any size but has a bias towards medium-sized and small companies. This focus differentiates the trust from the crowd, as most other UK equity income funds and investment trusts tend to have higher weightings to large companies.

The yield is around 4%, with dividends paid quarterly. The trust aims to provide investors with an attractive level of dividends, as well as capital growth over the long term.

Fund managers Gervais Williams and Martin Turner run a diversified portfolio of around 130 holdings. Alternative Investment Market (AIM) stocks account for around 30% of the portfolio. Smaller companies are often overlooked and under-researched by other investors, so the managers feel there is more opportunity to benefit from their potential for growth.

The managers seek to identify companies that are able to grow their dividends on a sustainable basis by scrutinising future turnover, margins and how much financial flexibility is in the balance sheet. The duo also assesses whether a management team will build real intrinsic value, as well as factoring in whether there are low expectations in the share price.

Just over a quarter of the portfolio is invested in large companies listed on the FTSE 100 index. The managers believe the best way to play a potential UK stock market recovery is through investing across the market in companies of all sizes.

The trust tends to trade on a small discount. The board aims to limit the discount to a level close to its net asset value (NAV), including offering shareholders once a year an opportunity to redeem shares at around NAV.

January 2021

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JP Morgan European Income trust is unusual as it has two portfolios of assets. One is income-oriented and the other is designed to produce capital growth. Shareholders in either of the two portfolios can convert some or all of their shares into the other on an annual basis every March, without incurring any liability to capital gains tax. The prospective yield for income shareholders is currently 5.7% and the income is paid quarterly. They also receive any growth in the assets of the income portfolio.

The trust has been run since 2006 by Stephen Macklow-Smith, Alexander Fitzalan Howard and Michael Barakos. They were joined by Thomas Buckingham in 2016. The managers choose stocks from a list of companies with the highest yields that have been screened for sustainability of dividends and momentum characteristics. They invest mainly in larger companies, but the portfolio also holds some medium-sized businesses.

They contend that unpredictable politics were holding markets back, and that the signs of thawing between the US and China and between the UK and EU have emboldened investors to take advantage of attractive valuations versus bonds and cash. They see further upside with more clarity on trade, Brexit and perhaps some renewed talk of fiscal stimulus.

The trust can be geared to the tune of 20% of net assets, although was using moderate gearing at the end of August 2020.

Please note: As a result of recent extreme economic conditions, many companies have temporarily stopped paying dividends or have significantly reduced the amount they are paying out. This means the income that is likely to be achieved by funds and trusts in the near future may be far less than the historic yield quoted in the portfolios.

September 2020

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Paul Jourdan has led this fund since 2000 and was joined by David Stevenson in 2012 and Anna Wilson in 2018. The trio look for poorly researched companies that may offer good opportunities at attractive share prices and run a portfolio of 70 companies.

Amati Global Investors, the smaller companies specialist behind the fund, says that having three managers makes their decision-making agile enough to respond to opportunities, but also considered enough to allow each recommendation to be subject to stringent peer review.

The team seeks management teams with a track record of success, and companies that have a high level of intellectual property and the ability to commercialise it. They avoid businesses with no clear competitive advantage and those where there are already larger rivals dominating the market in which they are operating.

Their aim is to provide a fund for all seasons. In order to do so, the team favours companies they can back over the long term. While they can invest only in listed businesses, the managers keep an eye on promising private companies that could float in the future.

September 2020

Cormac Weldon, an old hand with a good long-term track record of delivering performance throughout different market cycles, has run Artemis US Smaller Companies since its inception in 2014.

Weldon invests in small companies of up to $10 billion in size, typically selecting 40 to 60 stocks from an investment universe of more than 2,000. He aims to give investors exposure to the best of America’s innovative, entrepreneurial, fast-growing and under-researched small companies. He starts by looking at the US economy to identify areas of the market that are benefiting from thematic trends, as well as those where conditions may not be favourable.

Once a stock has been identified as worthy of closer inspection, in-depth, bottom-up analysis and financial modelling are used to develop and test the investment case. While collective research efforts support the fund, its final composition rests with Weldon. Three favoured sectors at present are industrials, consumer goods and financials.

Considering the fund’s small cap bias and single region of investment, this strategy could well fit the need of both balanced and more adventurous investors with longer-term investment horizon. Due to its unconstrained and concentrated nature, the fund’s return profile could be more volatile than the market, which makes it higher-risk option. Therefore, this strategy could be best utilised as a satellite holding within a well-diversified portfolio.

September 2020

Baillie Gifford Japanese investment trust’s main differentiator is that it focuses exclusively on high-growth smaller companies. Shin Nippon means ‘new Japan’ and Praveen Kumar, the trust’s manager since the end of 2015, backs 40 to 80 companies in emerging and disruptive sectors, often run by younger, more progressive management than is typical in Japan. Kumar pays little attention to the benchmark, as demonstrated by the high ‘active share’ the trust has. 

Although many of Japan’s corporate giants are well known to foreign investors, its smaller companies receive scant investment research coverage, so this part of the market is where some of the strongest gains can be made.

Smaller companies are typically higher risk, though, making this trust suitable for those who are very optimistic on the outlook for Japanese equities.

October 2020

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This fund invests in the predominantly large and medium-sized companies that are constituents of the FTSE World Asia-Pacific ex Japan index. Of almost 600 holdings, the top 10 account for around a third of assets. Half of the index fund is invested in shares listed in Australia and Taiwan . With an ongoing charge of 0.12%, this fund is one of the cheapest offerings in this sector, making it a good choice for investors who are looking to invest in the region.

October 2020

Nick Ford and Hugh Grieves, its managers since launch in 2013, aim to find businesses that are resilient to external forces such as competition, suppliers, customers and technological change. They seek companies with a competitive advantage in their products and services, that have regular and growing cashflows, and are more likely to deliver than businesses that are developing new products or relying on one-off events.

Ideally, they look for those with highly recurring revenues or frequent small purchases by customers, limited need for finances to support growth, and high barriers to entry. They believe only a small group of quoted companies fit such criteria and invest in 35 to 45 companies from the Russell 3000 index, which accounts for 98% of the investable US stock market.

They are primarily stockpickers, but keep an eye on macro trends and will avoid entire sectors if they think they are at risk of a setback.

September 2020

ASI Global Smaller Companies is a concentrated portfolio of about 50 high-quality, sustainable growth businesses. The stock selection process leverages the group’s ‘focus on change’ investment philosophy.

The fund leverages the group’s ‘matrix’ investment approach – a powerful proprietary quant model and analytical resource alongside the fund’s well-structured and disciplined approach. The quantitative screen aims to identify smaller companies from around the globe, including emerging markets, that have the best growth prospects. It ranks 6,000 companies it believes have been mispriced by the market, aiming to identify those with proven and sustainable business models, recurring revenues and quality earnings streams.

It was announced in late June that Alan Rowsell, the fund’s manager since inception in 2012, is stepping down from the fund. Veteran investor Harry Nimmo, who was co-manager of the fund at inception, has been re-instated (having stood down in December 2016) as co-manager of ASI Global Smaller Companies alongside Kirsty Desson, the existing co-manager. As the investment process will remain unchanged, and with Harry Nimmo returning to co-manage the fund, we continue to have conviction.

October 2020

TR Property is an unusual investment trust, because it is the only one listed by the Association of Investment Companies that invests mainly in the shares of property companies rather than physical property. This allows Marcus Phayre-Mudge, its manager since 2011, to adjust the portfolio more readily than if he were investing in direct properties, which can be hard to buy and take time to sell. When analysing potential investments, he and his team assess property assets, balance sheets and long-term records of managements using capital effectively to build asset valuation and earnings expectations for each company.

Phayre-Mudge can invest internationally but most of his holdings are in Europe, including the UK. He can invest in physical property in the UK, though this will generally not account for more than 20% of the portfolio. The trust is managed on a total return basis.

September 2020

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The recent performance of Artemis SmartGARP Global Equity has been uninspiring, mainly owing to its focus on value stocks and significant position in emerging markets. Peter Saacke, the fund’s manager since 2004, is a ‘growth at a reasonable price’ (GARP) investor, looking for companies he thinks are attractively valued but have the potential to grow. He uses Artemis’s in-house quantitative screening tool, SmartGARP, to screen a firm’s finances to help spot winners and keep decision-making objective. He then carries out his own stock-specific due diligence to ensure there is a real investment story behind any good SmartGARP score. As well as helping him to establish what to buy and when, the system alerts him to problems with existing holdings.

October 2020

Teera Chanpongsang, manager of Fidelity Asia, is one of the longest-tenured managers within the Fidelity Asia ex Japan equities investment team, based in Hong Kong. He has been with the firm for almost 25 years, starting as an analyst before taking on a portfolio management role. Chanpongsang took over this fund at the start of 2014 after predecessor Allan Liu retired. He has shown he is comfortably up to the task, performing well relative to peers in both up and down markets.

Chanpongsang seeks companies trading below their intrinsic value that he believes have improving fundamentals which are not yet reflected in the underlying share price. . He has no stated style bias, although typically leans towards ‘growth at a reasonable price’ (GARP). He will also take advantage of value opportunities, particularly restructuring stories, where he has significant conviction. The resulting portfolio has around 90 names.

Though broadly diversified at country and sector level, the manager tends to favour companies operating in emerging Asian economies, such as China and India, at the expense of more mature markets including Taiwan, Hong Kong and Singapore. This could lead to better returns over the longer term, but with potentially higher volatility.

Company management is a primary focus for Chanpongsang, particularly regarding the treatment of minority shareholders. Prior to joining Fidelity, he worked as an accountant in his native Thailand and he is especially wary of companies that display earnings growth without corresponding cashflow growth.

October 2020

This fund aims to track the performance of the S&P Total Market index. The fund buys most of the underlying stocks but optimizes its holdings of some of the smaller companies to generate performance that matches the index, whilst keeping costs to a minimum. It distributes income annually.

Its ongoing charges are 0.1% making it a very cheap fund to access the whole US equity market.

September 2020

This ETF physically invests in all the constituents of the FTSE Developed Europe ex UK index (around 475 shares), including those in non-EU or eurozone-member countries such as Switzerland, Sweden and Denmark. Dividends are paid quarterly, and yield is 3%. Ongoing charges 0.12%.

October 2020

This fund is well suited to investors who want a bit of everything, as it invests in companies of any size with good growth prospects. Launched in 1995, it was originally called the Marlborough UK Leading Companies fund but was renamed in 2014 to reflect its investments across the size spectrum.

Richard Hallett, the manager since 2005, backs 40 to 50 companies that have a sustainable competitive advantage they can use to raise prices and/or take market share. This could come from the quality of their management, branding, sales and marketing, product innovation, research and development or intellectual property. Often, it is a combination of these factors.

He particularly likes businesses that can grow throughout the market cycle, with limited need for capital expenditure and high levels of free cashflow to invest in further growth. Hallett tends to steer clear of cyclical and capital-intensive businesses such as commodities, construction and biotech companies and those with low barriers to entry, including contractors, consultancies and recruitment companies.

September 2020

The fund’s trio of experienced managers, Ian Heslop, Amadeo Alentorn and Mike Servant, follow the money under a quantitative model – ascertaining what type of stocks other investors are buying and then buying the best ones in those categories.

The team assess companies against various criteria including stock price valuation, balance sheet quality, growth characteristics, efficient use of capital, analyst sentiment and supportive market trends. These characteristics are analysed to produce a single return forecast for each stock. They then build a diversified portfolio of around 200 mainly larger company shares expected to outperform in the current economic environment.

The team have proven their ability to perform well during several challenging periods for active managers, often characterised by sharp style rotations.

September 2020

Describing itself as cautiously managed, F&C is the UK’s oldest investment trust and was established in 1868. It aims to appeal to those looking for their first investment or a core option for their portfolio. The trust has £3.8 billion of assets under management with low annual running costs (0.65%) and well-diversified portfolio, holding more than 500 companies across 35 countries.

Paul Niven has been its manager since 2014, when BMO Asset Management bought the F&C funds business. Niven is responsible for the asset allocation and level of gearing. He divides the portfolio into a range of global and regional strategies. Some of these, notably US equities and private equity, are subcontracted to external managers. Niven is permitted to have up to 20% exposure to private equity. Around 60% of the trust is held in US shares.

Besides its long-term growth objective, the trust has a 49-year history of annual dividend increases. It yields around 2% and pays dividends quarterly.

October 2020

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This fund aims to mirror the performance of the MSCI Emerging Markets index by physically investing in its 1,300-plus constituents. Exposure is focused on Asian emerging equities with around 40% of the total assets invested in China, and 12% in each Taiwan and South Korea.  

Ongoing charges are 0.20%, which makes this fund one of the lowest cost emerging markets funds. 

October 2020

Man GLG UK Income aims to achieve a level of income above the FTSE All-Share index together with some capital growth. It does this by investing primarily in UK equities or equities of companies that derive a substantial part of their revenues from activities in the UK.

Manager Henry Dixon focuses on dividend growth as opposed to the absolute level of yield, and runs a multi-cap portfolio with a distinct bias towards smaller UK dividend-payers. As the fund does not own many of the typical names owned by larger dividend-focused funds, it could experience greater volatility of returns than competitors. This fund may be suitable to complement a core portfolio.

Dixon takes a value-based investment approach and has managed to produce exceptional returns in excess of the benchmark over the short and medium-term despite the style being out of favour. The fund is relatively concentrated with 65 holdings. The manager also has the ability to invest in the bonds of companies where the team’s analysis of the capital structure suggests more attractive capital upside and income potential than in its equities.

Currently its yield is over 6%, and dividends are paid quarterly.

Please note: As a result of recent extreme economic conditions, many companies have temporarily stopped paying dividends or have significantly reduced the amount they are paying out. This means the income that is likely to be achieved by funds and trusts in the near future may be far less than the historic yield quoted in the portfolios.

September 2020

Launched in 2009, this fund changed its name from Henderson European Special Situations when its managers Richard Pease and James Milne moved to Crux, which they co-founded in 2014. A well-defined approach and experienced team are two of the main competitive advantages this strategy has.  

The duo aim to back around 60 of the best stock ideas and consider four key criteria in their stock selection. They look for companies with identifiable business strategies that have high barriers to entry and strong pricing power, enabling them to generate robust earnings with growth potential. They also seek sound businesses that are not highly capital-intensive and where the return on capital employed exceeds the cost of capital.

Pease and Milne assess quality management, picking businesses whose managements have proven track records and meaningful equity ownership of the companies they manage. Finally, companies need to be on attractive valuations. If valuations are high, it is considerably harder for shares to exceed expectations, they say.

The managers have the courage of their convictions and are not afraid to avoid index heavyweights if the investment case is lacking. 

October 2020

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Keith Ashworth-Lord, who has run the fund since its inception in 2011, aims to replicate the investment style of legendary value investor Warren Buffett. Ashworth-Lord aims to invest in companies with strong balance sheets and the ability to grow over the long term. His style is known as ‘business perspective investing’, which follows Buffett’s principle of buying shares in good businesses for less than the businesses are intrinsically worth, and ideally holding the shares forever. While that might not always be the case, Ashworth-Lord is investing on a time horizon of at least five to 10 years.

He says the fund’s success is down to getting the investments right after extensive research. When he finds an attractive investment, he invests a meaningful amount in it. He concentrates the fund in relatively few companies – around 35 holdings typically – which he feels he knows a lot about. Ashworth-Lord firmly believes that investment is a business venture, not a gamble, and that it is the companies owned that make money for the investor, rather than the stock market.

September 2020

Murray International has grown its dividends, paid quarterly, for the past 16 years. Its five-year record is uninspiring, but we remain fans of the trust due to the manager’s experience, its attractive income qualities (both its consistent record of dividend payments and market-beating yield of 5.7%) and its focus on Asia Pacific and emerging market companies (which account for around 40% of the portfolio). The majority of other global income funds and trusts tend to mainly stick to shares listed in developed markets – US, UK and Europe.

Bruce Stout has been managing the trust since 2004, but his involvement dates back to the 1980s. He focuses on defensive businesses where he has a high degree of confidence that the companies can continue to deliver earnings and dividends, and not paying too high a price for them. Stout believes being able to invest globally gives him scope for great diversification, which helps to reduce volatility.

October 2020

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This ETF seeks to track the performance of the MSCI World index, comprised mainly of large companies from 23 developed markets. It invests in 85% of the listed equities in each country – more than 1,600 constituents. The ETF buys most of the underlying stocks but optimizes its holdings of some of the smaller companies to generate performance that matches the index, while keeping costs to a minimum. Ongoing charges are 0.2%.

iShares is a leading ETF provider, has a very experienced portfolio management team and market-leading technology.

A combination of consistent good performance, close tracking of the market index and one of the cheapest world equity exchange-traded funds available makes this a great way for investors to generate performance in line with the world’s major stock markets.

October 2020

Investors could consider this strategy as an option to gain exposure to the infrastructure theme and still receive progressive income. Although its main aim is to produce a good total return, it pays a quarterly income. Its yield is currently 4.4%.

Charles Jillings leads the management team. He believes the infrastructure sector is far more dynamic and less mundane than people realise. His investment universe is companies and sectors displaying the characteristics of essential services or monopolies – such as utilities, transport infrastructure, communications and companies with a unique product or market position – which gives it considerable defensive qualities. In selecting stocks, he aims to identify companies where underlying value and growth prospects are not reflected in the share price.

The trust focuses on underdeveloped and developing markets of Asia, Latin America, emerging Europe and Africa. It has the flexibility to invest in markets worldwide and favours countries with political stability, economic development, an acceptable legal framework and an encouraging attitude to foreign investment. 

October 2020

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Historically, investors turned to commodities as a source for portfolio diversification and hedge against rising levels of inflation. In fact, commodities have been in a bear market for over a decade.

However, more recently there is improved sentiment towards the asset class on the back of structural long-term trends. These include economic recovery from the pandemic and inflation fears along with infrastructure spending and hence higher demand for materials. Also, commodities have a cyclical nature and the current point in the market cycle might be an attractive entry opportunity.

WisdomTree Enhanced Commodity ETF offers access to a broad range of commodities – 22 across four underlying themes that include industrial metals, precious metals, energy and agriculture.

Currently its largest individual position is in gold (over 12% as at the latest fact sheet of 28/02/2021), which traditionally is viewed as a hedge in inflationary environment. However, the fund offers a well-diversified portfolio and its holdings tend to show lower correlation between each other. Oil and gas also represent a sizeable chunk of the portfolio (around 24%).

The fund is also well-positioned to benefit from the current market climate and potentially deliver higher real returns. Its effective cost management and lower risk profile gives the strategy a competitive advantage against its peers.

The fund tracks the Optimised Roll Commodity Total Return Index which combines the Bloomberg Commodity constituents and starting weights with the S&P GSCI Dynamic Roll methodology. While the Bloomberg Commodity Index only invests in front month contracts, the strategy targets the most optimal contract each month, which brings efficiency in managing the cost of carry associated with commodity futures. Furthermore, the fund is focused on longer-dated maturities, which lowers its volatility profile.

May 2021

This exchange-traded fund (ETF) provides investors with a broad well-diversified portfolio and offers an attractive dividend yield at low cost.

It tracks the FTSE All-World High Dividend Yield Index, giving investors exposure to 1,499 large and medium-sized companies from around the world deemed to have higher than average yields. Its highest weighting is to North America, which accounts for around 40%. This is followed by Japan and United Kingdom.

It has an ongoing charge of 0.29%.

January 2021

Guinness Asian Equity Income delivers a high yield of around 4%, which is paid half-yearly. It aims to provide investors with exposure to high-quality, dividend-paying companies in the Asia Pacific. Its lead manager is Guinness Asset Management’s Edmund Harris, who has been managing Asian funds for more than 25 years and the Guinness Asian funds from launch in 2013. He is assisted by co-manager Mark Hammonds and analyst Sharukh Malik. Harris and Hammonds run a high-conviction portfolio of around 36 equally weighted stocks and have no benchmark constraints.

The stocks are equally weighted and managed on a disciplined one-in, one-out basis. The duo look for three things: quality, value and dividends. They focus on profitable companies that have generated persistently high return on capital over the last eight years, demonstrating stability and resilience, as well as delivering significant dividend growth. The team believe strong cash generation and distribution as dividends also provide a degree of downside protection against volatility in local markets.

The managers point to the Asian region being a mix of advanced, high-income economies and newly industrialised countries. High growth and rapid development are often accompanied by volatility and risk, but they say strong generation of cash and its distribution as dividends provide a degree of downside protection.

October 2020

UK equity income fund veteran Martin Cholwill has managed this fund since 2005.

Cholwill favours a concentrated portfolio of 40 and 60 stocks, which means each of his ideas contributes meaningfully to performance. He can invest in companies of any size but tends to have a bias towards medium-sized ones, albeit his top 10 holdings are centered on some big FTSE 100 dividend stocks to keep the income up.

The fund invests across a broad spectrum of industries where Cholwill sees value, in particular focusing on companies with attractive cashflow characteristics that are able to support a growing and sustainable dividend. As he points out, it is cashflow that pays the dividend, funds investment for future growth and helps provide resilience in a range of market conditions.

Macroeconomic factors are considered when assessing company prospects. The fund is underpinned by cautious economic growth assumptions, and its focus on strong market positions, cashflow-backed dividends and robust balance sheets should deliver durability in a range of possible economic outcomes. But Cholwill says it is stock selection based on thorough company research, including meeting management teams, that is the main driver of his performance.

The fund pays income quarterly and currently has a yield of just under 5%.

Please note: As a result of recent extreme economic conditions, many companies have temporarily stopped paying dividends or have significantly reduced the amount they are paying out. This means the income that is likely to be achieved by funds and trusts in the near future may be far less than the historic yield quoted in the portfolios.

September 2020

This fund has been managed by Rory Powe since 2014. Powe has a near 30-year history of running European equity funds, with his current fund already showing the benefit of his well-defined investment process. The companies in which he invests must meet several stringent criteria before they are included in his portfolio, which consists of around 30 holdings from a list of more than 2,000 possibilities. They can be of any size and from any country or industry in continental Europe. He owns big consumer companies such as Ferrari, L’Oreal and LVMH, as well as less well-known names.

In order to pass Powe’s selection process, companies must display several characteristics that are sustainable over the long term. First, they must enjoy a leadership position in their marketplace to ensure they have pricing power. Second, they must demonstrate an ability to grow and achieve rising profits and strong free cashflows. Third, they must exhibit financial strength generally. And finally, their share price must also show growth potential.

Powe divides the companies in his portfolio into two types – established leaders represent at least 50% of the fund, while emerging winners can account for up to a third. He expects more growth from those in the latter camp, but they also involve greater risk.

October 2020

This fund physically invests in the constituents of the FTSE UK Equity Income index. Top 10 holdings account for 45% of assets. The current distribution yield is 6.1%, with income distributed half yearly. Ongoing charges are 0.14%.

A combination of consistent performance, close tracking of the market index and very competitive charges make this a great way for investors to generate significant yield from UK stocks.

Please note: As a result of recent extreme economic conditions, many companies have temporarily stopped paying dividends or have significantly reduced the amount they are paying out. This means the income that is likely to be achieved by funds and trusts in the near future may be far less than the historic yield quoted in the portfolios.

September 2020

Shiozumi Asset Management, whose founder Hideo Shiozumi has 50 years’ investment experience, runs the fund. The manager's strategy takes a long-term view and focuses on companies that can exploit and benefit from a changing Japan – an ageing population, changing consumer lifestyles and ‘internet empowerment’.

The portfolio is focused on domestic-oriented sectors that Shiozumi believes will be major beneficiaries from workstyle reforms. These include medical and nursing care services, outsourcing business and e-commerce. He seeks to identify high-growth companies with annual earnings growth of more than 20%, which are nevertheless attractively valued. His investment style is based around three key principles that he has honed over his career: having a focus on growth companies, running a high-conviction portfolio that is far more concentrated than competitors and the index, and holding stocks for the truly long term.

He invests in companies across the market capitalisation spectrum but has a bias towards small and medium-sized companies operating in profitable niches – where Shiozumi thinks the potential for share price expansion is the greatest. In addition, the fund is highly concentrated, with typically holding around 40 shares.

October 2020

Liontrust Special Situations benefits from a simple but effective investment approach and very experienced management team. With assets of over £5 billion it cannot invest in smaller companies to the extent it has in the past, but it remains a quality option for core UK equity exposure. The fund is managed by Anthony Cross and Julian Fosh who use their ‘economic advantage’ model approach to investing.

Cross has managed the fund since its inception in 2005, with Fosh joining him in 2008. They favour businesses that can grow their earnings independently of the wider economy and look for those with intellectual property. This includes strong distribution networks, recurring revenue streams and products with no obvious substitutes. They also favour companies with strong brands and good customer relationships, in the belief that these attributes give a business the power to produce higher levels of profitability for longer than expected. Another important factor is how key employees are motivated, with the managers’ preference being for the board of directors to directly own shares in the company.

The portfolio is typically very different from the UK stock market, with a significant underweight to large companies and a slug of assets in medium and small companies. The fund predominantly invests in small companies that are listed on the AIM market.

September 2020

This fund aims to track the performance of the FTSE All-Share index, which captures 98% of the UK's market capitalisation. The index fund invests physically in over 400 of the constituents in the index, predominantly the largest names that account for the vast majority of the index in percentage terms. In total the FTSE All Share contains more than 600 shares. Top 10 holdings account for around a third of assets. The current yield for the income share class, distributed quarterly, is 4%, which can also be reinvested by selecting the accumulation share class. Ongoing charges are 0.06%.

A combination of consistent performance achieved by close tracking of the market index and very competitive charges makes this a great way for investors to gain very broad and diversified exposure to UK equities.

September 2020

This trust, rebranded from F&C to BMO in 2019 following a takeover in 2014, is one of the largest in the direct property investment trust sector. It has one of the most experienced management teams led by Richard Kirby, who has run the trust since its launch in 2005.

It is attractive for income investors, offering a monthly dividend payment. The monthly payment, however, was suspended on 16 April in response to uncertainty of the impact Covid-19 would have on future rental receipts.

In a trading update (on 4 August) the trust announced that monthly dividends will be reintroduced, but at 50% lower than the previous rate. From August onwards it will pay 0.25 pence per share. The board added that the level of monthly dividend will remain at this rate until further notice, but that it will be kept under review in light of the significant economic risks and continuing uncertainty regarding the path of Covid-19. Read more

The quality and diversity of the portfolio are plus points, as are various limits that help to maintain diversification and reduce risk. For example, no single property can account for more than 15% of gross assets at the time of acquisition, and the largest five properties must be no more than 40% of gross assets. There are also limits on the proportion of short-leasehold properties (with less than 60 years remaining) and the proportion of the portfolio in different sectors. The trust owns properties located throughout the country but typically has over half its portfolio in London and the South East.

August 2020

• To learn about investment trusts read our beginner’s guide
• Our explainer video runs through investment trust discounts and premiums   

The Vanguard Life Strategy 80% Equity Fund provides 80% exposure to global equities and 20% exposure to global bonds via several index-tracking funds run by Vanguard. US equities is its largest allocation, followed by UK equities and global bonds. Its three biggest holdings, which account for nearly 60% of the fund, are Vanguard US Equity Index Fund, Vanguard FTSE Developed World ex-UK Equity Index Fund and Vanguard FTSE UK All Share Index Unit Trust. The non-UK exposure within bonds is hedged back to sterling but equities are not hedged. Index funds held within the fund are automatically rebalanced to static target weights. The fund only holds a selection of Vanguard index funds and ETFs, which helps reduce costs.

The fund is part of the wider Vanguard Life Strategy range of funds that offer five pre-determined mixes of equities and bonds in order to meet a range of risk and return profiles among investors. Equities offer higher potential returns than bonds – but are riskier. If you are a more cautious investor you might want to choose a LifeStrategy fund with less equities and more bonds. An adventurous investor on the other hand might want to choose a LifeStrategy fund with more equities.

Managed by highly experienced and well-resourced team at Vanguard, the range stands out with a clear and well-defined investment process and consistently produced strong risk adjusted returns relative to peers. With an ongoing charge of just 0.22%, these funds are the ultimate, globally diversified one stop shop. Spreading risk across equities and bonds, they are the ideal way for beginner investors who are comfortable with a high level of risk to get started investing.

August 2020

Fundsmith Equity has an incredibly strong track record under industry stalwart Terry Smith, which has won it numerous awards.

The fund invests in high quality, well-established companies. Smith says he does “not seek to find tomorrow’s winners – rather, to invest in companies that have already won”. His approach is to pick a small selection of resilient, global growth companies that are good value, and stick with them. Only a handful of holdings have been changed since the fund’s inception.

The fund typically holds around 30 companies with around 66% of the portfolio invested in the US market. Smith likes big brands, with his largest investments including Microsoft, Facebook and Phillip Morris. He backs his conviction by investing his own money alongside investors’. Other qualities he looks for in companies are a high return on capital and advantages that are difficult to replicate. Smith believes it is virtually impossible to predict which way stock markets will move, but that the strength of the companies he holds will allow them to continue to grow their intrinsic value.

September 2020

City of London remains a compelling core option for investors. It has a formidable reputation as an income-producing investment trust and in July 2020 notched its 54th consecutive year of rising dividends. Job Curtis has been managing the strategy for 29 years, a length of tenure that is exceptionally rare.

Curtis focuses on high-yielding, cash-generative businesses and initiates performance by taking relatively small bets away from the index, rather than aggressive sector and stock positioning.

As head of value and income at Janus Henderson Investors, Curtis looks for companies undervalued on a medium-term basis that he can invest in over the long term. He has, however, been focusing on overseas earners rather than UK domestic names, despite the former’s valuations being higher, given what he views as an unprecedented level of economic uncertainty in the UK.

The portfolio is well diversified with around 100 holdings. The manager likes to run his winners, so portfolio turnover is low. Shares in the trust typically trade at a small premium to net asset value. Investors benefit from the trust’s very low costs. This is one of the largest of the UK equity income trusts with one of the lowest ongoing charge ratios of 0.39%.

Shares in the trust currently have a yield of 6%, and pay a quarterly dividend.

Please note: As a result of recent extreme economic conditions, many companies have temporarily stopped paying dividends or have significantly reduced the amount they are paying out. This means the income that is likely to be achieved by funds and trusts in the near future may be far less than the historic yield quoted in the portfolios.

September 2020

• To learn about investment trusts read our beginner’s guide
• Our explainer video runs through investment trust discounts and premiums

This passive fund may suit investors who are looking to get exposure to the property sector but are concerned about liquidity in direct ‘bricks and mortar’ property funds.

The ETF offers low-cost, globally diversified exposure to property securities. Investors should note that this asset class may not perform as well as a diversifier in a portfolio as direct property funds.

It has a fee of just 0.17% and tracks the FTSE EPRA/NAREIT Developed Index of around 340 of the largest REITs in developed countries.

January 2021

This fund provides broad exposure to Japan by tracking the return from the FTSE Japan index, investing in all the large and medium-sized companies that are constituents of the index. With relatively high concentration in the top 10 holdings, the index fund pays an annual dividend and yields around 2%. The ongoing charges are set at 0.17%.

October 2020

Artemis Monthly Distribution has a historic monthly yield of 3.7%, making it suitable for long-term investors drawing a regular income from their portfolios. It achieves this from a widely dispersed portfolio across geographies and asset classes, with its significant level of overseas exposure setting it apart from peers – with typically around one quarter of assets in the UK. The fund invests around 60% in bonds and 40% in company shares.

James Foster and Jacob de Tusch-Lec have run the fund since its inception in 2012. They are responsible for the portfolio’s bond and equity holdings respectively. They take the same approach as they do with other funds they manage. Foster takes his best ideas from the Artemis Strategic Bond fund, while de Tusch-Lec uses the same stock-picking approach and core income ideas from the Artemis Global Income fund. The managers believe their differing but complementary perspectives allow them to identify where the value lies in a company’s capital structure. In some cases, a company’s bonds will offer a better return than its shares and vice versa.

The managers favour quality businesses in robust financial positions. They do not ignore what is going on in the wider economy either. They select the holdings they feel are right for prevailing economic conditions. De Tusch-Lec points out that while some other income funds rely on defensive income stocks, this fund takes a more flexible approach to investing in equities, holding value or cyclical stocks depending on the prevailing conditions at the time.

September 2020

The fund is managed by seasoned and talented UK equity manager Nick Train. It is run on a high concentration basis but had no liquidity issues during a period of large redemptions in 2019.

The top 10 stocks in Lindsell Train UK Equity account for over three quarters of the portfolio. Train highlights the liquidity inherent in his approach, which leads him to invest predominantly in well-established companies with multi-billion-pound market capitalisation. The fund has no unquoted/unlisted holdings and never has.

The manager stresses that he cares more about maintaining or growing the real value of investors’ capital and income over time than outperforming a stock market index. The investment process he uses across all his funds is based on his conviction that inefficiencies exist in the valuation of exceptional quoted companies. In his opinion, “excellent companies tend to create great wealth for their patient owners over time” – this is the effect he is aiming to capture with this strategy. Train finds most of his candidate investments in a select group of broad industry categories – financial services, beverages, personal goods and media. Favoured holdings include Diageo, Unilever and London Stock Exchange.

September 2020

The Vanguard Life Strategy 60% Equity Fund provides 60% exposure to global equities and 40% exposure to global bonds via several index-tracking funds run by Vanguard. The bond content is spread globally, with 13% of assets in the UK. In terms of equity exposure, the US is the biggest country weighting followed by the UK. The non-UK exposure within bonds is hedged back to sterling but equities are not hedged. Index funds held within the fund are automatically rebalanced to static target weights. The fund only holds a selection of Vanguard index funds and ETFs, which helps reduce costs.

The fund is part of the wider Vanguard Life Strategy range of funds that offer five pre-determined mixes of equities and bonds in order to meet a range of risk and return profiles among investors. Equities offer higher potential returns than bonds – but are riskier. If you are a more cautious investor you might want to choose a LifeStrategy fund with less equities and more bonds. An adventurous investor on the other hand might want to choose a LifeStrategy fund with more equities.

Managed by highly experienced and well-resourced team at Vanguard, the range stands out with a clear and well-defined investment process and consistently produced strong risk adjusted returns relative to peers. With an ongoing charge of just 0.22%, these funds are the ultimate, globally diversified one stop shop. Spreading risk across equities and bonds, they are the ideal way for beginner investors who are taking a medium risk approach to get started investing.

August 2020

Dan Roberts has run Fidelity Global Dividend since its launch in January 2012. Although its history does not span a full market cycle, the fund has been a solid performer, generating outperformance in more difficult markets, while keeping up in strongly rising markets. The fund has consistently ranked in the top quartile every calendar year, except for 2016 and 2017. This is in line with expectations, as his approach should benefit when quality, defensive large companies do well.

Roberts describes his approach as “unconstrained, dividend-based, total return, with an emphasis on capital preservation”. The fund aims to deliver good long-term total returns with lower volatility than stock markets generally, and income growth ahead of inflation. Its current yield is about 3% and dividends are paid quarterly.

There are five key investment characteristics that Roberts holds dear: simple, understandable business models; predictable, resilient return profiles; healthy balance sheets; transparent financial statements and sensible capital allocation. To invest in good-quality companies on reasonable valuations, he often adopts a contrarian attitude.

He relishes the fund’s global mandate, explaining that it gives a much greater opportunity to select from within sectors and across different industry groups. Roberts feels this helps him with portfolio construction and in managing sector skews and stock concentration. He can also take advantage of relative valuation opportunities and access sectors that may not be available when a fund’s mandate is country specific.

His fund typically holds around 50 companies, which he says enables him to balance conviction with diversification and to achieve a degree of capital protection in volatile markets.

October 2020

The fund currently yields 3.4% and may be a good option for investors who target a stable income. Atlanticomnium is an independent Geneva-based fund management company that has specialised in credit investing since it was founded in 1976, and runs the fund for GAM. Managers Anthony Smouha, Grégoire Mivelaz and Patrick Smouha aim to provide investors with a high income, paid annually, from high-quality bonds.

They achieve this by lending to investment-grade companies, ideally for 10 years or more. Instead of buying their senior bonds, which are first in line for repayment if a company defaults on their debt, the managers opt for their junior or subordinate bonds. These tend to be slightly riskier than senior bonds because investors are further down the list to get their money back if a company goes bust. But the idea behind this fund is that investors get a higher yield without a corresponding increase in risk, because the managers invest only in quality companies.

They use top-down and bottom-up research to identify profitable, growing and cash-generative companies. They look for companies that are doing well, in the belief that they are unlikely to default on their debt commitments whether they are senior, junior or subordinate. They say this approach is more akin to an equity fund manager’s, because it means focusing on the health of the company rather than what would happen if something went wrong, as bond managers tend to.

September 2020

Legg Mason IF ClearBridge Global Infrastructure Income is targeted at investors with two primary objectives – reliable income generated from dividends of underlying holdings and capital growth above the level of inflation over five years. The managers seek to outperform the OECD G7 Inflation index by 5.5% over an investment timeframe of five years.

The fund invests in a diverse basket of global listed infrastructure assets in various sub-sectors such as water utilities, gas, electricity etc. The portfolio is also spread across different geographical areas, with the US, Australia and Canada the top three country weightings.

The fund is run by the highly regarded and well-resourced infrastructure team at ClearBridge Investments. It is co-managed by Nick Langley, Shane Hurst, Charles Hameih and Daniel Chu, who are based in Australia but regularly travel to their additional offices in the UK, Europe and North America. They also have the support of a team of analysts responsible for idea generation and ongoing monitoring of existing holdings.

The investment process takes into account both ‘top-down’ macroeconomic factors and ‘bottom-up’ fundamental stock-specific research. The team’s philosophy is that markets tend to misprice infrastructure assets over the short-term and there is a great opportunity set in taking a long-term valuation-focused approach.

The managers run a concentrated portfolio of around 40 holdings. Examples of holdings include the Spanish electricity grid corporation Red Electrica, and Brookfield Renewable which operates one of the world's largest renewable power platforms.

January 2021

Eric Holt, a bond veteran, and Rachid Semaoune have run this flexible bond fund since it launched in late 2015. Holt has extensive knowledge of investment grade and high yield corporate bonds, gained over a career spanning 40 years. He has overall responsibility for Royal London Asset Management’s credit research process. Semaoune joined Royal London’s fixed income team in 2015 and has almost 20 years’ experience in credit markets.

With this fund, the pair run a well-diversified portfolio of around 200 holdings, predominantly focused on international credit markets. US and European debt account for more than 70% of the portfolio. UK debt accounts for around 20%. In terms of credit quality, the fund prefers high-yield and unrated bonds.

The managers believe that corporate bonds remain attractive over the medium term, while the level of income generation is also appealing given the prospect of short-term interest rates staying lower for longer.

October 2020

Royal London Sterling Extra Yield Bond fund has been managed since its 2003 launch by Eric Holt, who has three decades of bond market experience behind him. In 2019, he teamed up with co-manager Rachid Semaoune.

The managers aim to provide investors with a high yield (5.5% at present, paid quarterly) without taking the degree of risk normally associated with high-yield funds. For this reason, they favour bonds secured against specific assets, such as property or cashflow.

They look to exploit bond market inefficiencies and believe that by considering a wider investment universe than many of their peers, they can uncover value in many areas that are often overlooked and undervalued. They do not rely on bonds’ credit ratings. The main question for them is whether there is enough reward for the risk being taken. In practice, this means that the portfolio will hold untypical bonds, such as unrated bonds, sub-investment-grade bonds, smaller issue-size bonds and non-sterling bonds.

The fund is highly diverse, with almost 240 holdings. It typically has around 30% of the portfolio in unrated bonds.

September 2020

Capital Gearing’s dual objectives are to preserve shareholders’ real wealth and to achieve an absolute total return (using Retail Price Index inflation as the minimum target to beat) over the medium to longer term.

We view this trust as a good fit as a core holding due to its defensive stance and high levels of diversification. In addition, the trust would complement funds and trusts with more adventurous risk profiles.

Peter Spiller has managed the trust since 1982. He is the longest-serving manager of an investment trust. Alastair Laing and Chris Clothier assist him. Under Spiller’s tenure the trust has been a great preserver of wealth in bear markets, including the dot-com crash and the Global Financial Crisis.

The trust sits in the Association of Investment Companies’ flexible investment sector, which houses multi-asset trusts that can invest in a range of different assets. Capital Gearing’s portfolio is mainly comprised of bonds, equities (another name for shares) and property, with small holdings in infrastructure, gold, and cash. Investment in equities is normally through investment trusts and other collective investment vehicles. Spiller looks to take advantage of investment trust discount opportunities when they arise.

The trust is completely flexible in its asset allocation, with Spiller only investing where he sees value. Around 50% of the portfolio is invested in funds/equities. The portfolio also has a big emphasis on index-linked government bonds, which account for around 30%. Such bonds offer protection when stock markets fall, as well as providing a shield against inflation. Inflation is at low levels, but Spiller believes it will elevate in the years to come, in part due to the huge government borrowing that has taken place in response to the Covid-19 pandemic.

The board adopted a zero-discount policy in 2015 to ensure the price of shares in the trust trades as close as possible to the underlying net asset value (NAV) per share. Under this policy Capital Gearing purchases or issues shares to ensure the trust trades on a small premium or a small discount.

January 2021

• To learn about investment trusts read our beginner’s guide
• Our explainer video runs through investment trust discounts and premiums   

Morgan Stanley Global Brands Equity Income Fund is run by the highly experienced and well-resourced International Equity team at Morgan Stanley. It seeks to provide investors with an attractive yield of around 4% per annum alongside long-term capital growth and performance has also been relatively resilient during the recent market downturn.

The team takes a high-conviction approach and runs a highly concentrated portfolio of around 20-40 holdings. The income the fund generates comes in two forms. The underlying companies in the portfolio have an average dividend yield of around 2%. The fund’s income is boosted to 4% by a derivatives-based strategy for which the fund receives regular premiums.

The investment process is well-defined and a stock needs to tick a number of boxes before being considered for inclusion. These include durability of the franchise, sustainable returns on capital, and strong revenue streams.

The fund is not constrained by an index benchmark and does not take bets on regions or market sectors. The investment process is purely based on individual stock merits. The result is a strong long-term track record of generating income and delivering returns in excess of both the MSCI World index benchmark and the Investment Association’s Global Equity Income sector average. The strategy has generated better risk-adjusted returns and lower volatility than its peer group.

This fund could be suitable for investors seeking a higher income than that supplied by core equity funds, while at the same time looking for a good balance between income and capital appreciation. It could also provide diversification benefits beyond traditional income maximising strategies, which tend to find opportunities in more cyclical and economically sensitive areas of the market such as Financials and Energy.

July 2020

The Fidelity Multi Asset Income fund aims to generate a natural and sustainable income by investing in a broad range of assets to help diversify risk and preserve investors’ capital. This is achieved mainly through investment in other Fidelity funds.

The strategy targets a sustainable yield of 4% to 6% a year , over a five-to-seven-year timeframe. The fund sits in the Investment Association’s 0-35% Shares sector, meaning it will hold a maximum of 35% in equities, which are higher risk investments. It has ongoing charges of 0.89%, which is reasonable for a fund-of-funds approach.

Eugene Philalithis, who joined Fidelity in 2007, is the lead portfolio manager of Fidelity’s Multi Asset Income funds range, supported by co-managers George Efstathopoulos and Chris Forgan. The managers draw on research provided by the broader team, which is made up of more than 90 investment professionals located across the world.

The fund’s investment process seeks to blend uncorrelated sources of both income and returns, while paying significant attention to risk management. This leads to a diversified portfolio consisting of different asset classes and underlying strategies.

Its assets can be broken down into three broader categories depending on their return, yield and risk specifics. These are: defensive assets that include investment grade corporate bonds and cash (currently around 40% of the overall portfolio), high yield and local emerging markets debt (also around 40% of the fund), and growth assets consisting of equities and real assets (around 20% of the fund).

January 2021

Rathbone Ethical Bond has a higher income target than most of its peers and currently yields 3.6%. Income is paid quarterly. Bryn Jones has run this fund since 2004 and was joined by assistant manager Noelle Cazalis in 2016. They invest predominantly in investment-grade bonds. They use an approach that considers economic and political trends, company analysis and thematic ideas. Once investment themes have been developed, Jones and his team look for the best bonds to buy within that framework.

When assessing which companies’ bonds to buy, the managers use the ‘four Cs plus’ process to help make their selections. These are: character (management’s ability to react to events); capacity (sources of liquidity and cash-flow analysis); collateral (assets that are pledged); and covenants. The ‘plus’ is conviction: Jones believes that in order to achieve long-term, above-average performance, he must think differently from the market.

Rathbone Greenbank, the company’s ethical investment unit, then applies an ethical screen. Exclusions are simple: no mining, arms, gambling, pornography, animal testing, nuclear power, alcohol or tobacco, which rules out about one third of their universe. All positions must also have at least one positive environmental, social or corporate governance quality. Jones welcomes this ethical overlay, regarding it as an extra level of investment diligence.

September 2020

Claudia Calich has been managing the M&G Emerging Markets Bond fund since 2013. She believes that choosing the right mix between government and corporate issues in local and hard currency, together with careful country and security selection, are key factors in seeking to maximise returns. With this fund, which currently yields around 5.5% and pays income half-yearly, Calich and her deputy, Charles De Quinsonas, can take a flexible approach. This means they can allocate the portfolio in an unrestricted way between the four main emerging market bond sub-asset classes – government debt and corporate bonds issued in both local and hard currency. 

Calich’s macroeconomic assessment begins with the global economic and market outlook, as well as the overall risk profile of the different economies. Liquidity, solvency, balance of payments and political factors are among the key considerations for emerging market government bonds, while their company analysis includes ownership structure, business risk and financial risk.

Calich’s investment thesis favors the freedom to invest in emerging market corporate as well as government bonds, which should provide greater opportunities compared with funds restricted to the much smaller number of emerging market government issuers.

October 2020

The Vanguard Life Strategy 20% Equity Fund provides 20% exposure to global equities and 80% exposure to global bonds. The bond content of the fund has just over a quarter of assets in the UK and the remainder spread globally. Equity exposure to global equities is mainly achieved through the Vanguard FTSE Developed World ex-UK Equity Index Fund. The non-UK exposure within bonds is hedged back to sterling but equities are not hedged. Index funds held within the fund are automatically rebalanced to static target weights. The fund only holds a selection of Vanguard index funds and ETFs, which helps reduce costs.

The fund is part of the wider Vanguard Life Strategy range of funds that offer five pre-determined mixes of equities and bonds in order to meet a range of risk and return profiles among investors. Equities offer higher potential returns than bonds – but are riskier. If you are a more cautious investor you might want to choose a LifeStrategy fund with less equities and more bonds. An adventurous investor on the other hand might want to choose a LifeStrategy fund with more equities.

Managed by highly experienced and well-resourced team at Vanguard, the range stands out with a clear and well-defined investment process and consistently produced strong risk adjusted returns relative to peers. With an ongoing charge of just 0.22%, these funds are the ultimate, globally diversified one stop shop. Spreading risk across equities and bonds, they are the ideal way for beginner investors who are taking a cautious approach to risk to get started investing.

August 2020

Jupiter Strategic Bond has the freedom to invest across the bond market. Other fund types are restricted to buying a particular variety of bond or those issued in a certain region.

Ariel Bezalel, head of fixed income at Jupiter, has been at the helm of the strategy since its inception in 2008. Bezalel invests in the best opportunities globally, across a range of fixed interest securities including high-yield bonds, investment-grade bonds, government bonds and convertibles. He can also use derivatives to mitigate the risk of falling bond prices. The fund yields 2.9% and pays income quarterly.

Bezalel picks investments based on his view of the global economy, working out how much risk is appropriate to take, and which sectors and countries offer the best opportunities, considering factors such as inflation, interest rates and economic growth. When he is feeling more risk-averse, he typically has more investment-grade bonds in the portfolio.

Since avoiding losses is his top priority, when investing in high-yield bonds he prefers the most senior bonds in a company’s capital structure. These are typically secured on the company’s assets. He also likes companies that are paying down their debts over time, which helps to improve their creditworthiness and pushes their bond prices higher. Given the fund’s flexibility and the way Bezalel invests this may be a good option for lower risk profile investors.

September 2020

This fund physically invests in an optimised sample of around 12,000 investment-grade bonds included in the Bloomberg Barclays Global Aggregate Float Adjusted and Scaled index, hedged back to sterling. This means that currency risk is removed from the fund. Most holdings are government bonds. This fund may appeal to investors who are looking to invest in global bonds in a cost-effective way, without the currency risk. The income share class pays a quarterly dividend and the yield at the end of September stood at 1.62%. Ongoing charges 0.15%.

October 2020

Marlborough Global Bond is a one-stop shop for cautious bond investors, as the managers adopt a cautious approach to investing. They aim to capture gains when markets rise while protecting investors’ money when they fall. Its broader-based, conservative portfolio makes this a decent core holding. It pays a competitive yield of around 3% and distributes income half-yearly.

At the helm is Geoff Hitchin, who helped with the fund’s launch in 1987 and has now run it for 32 years. Nicholas Cooling, its co-manager since 1999, recently stepped down, with Danny Fox and Niall McDermott joining Marlborough in 2018 as assistant managers. They believe that by holding a good spread and selecting individual bonds carefully, they can manage volatility and achieve consistent performance.

The managers invest across the globe in bonds with different maturities and credit ratings, and in different currencies. The fund has around 450 holdings – considerably more than most comparable funds.

October 2020

An admirably steady performer, Lindsell Train Japanese Equity has been managed by Michael Lindsell since 2004.

Lindsell believes only a very limited number of companies meet his requirements for ‘exceptionalism’, so he concentrates the fund’s assets in a small number of holdings, typically 20 to 35. He focuses on companies with sustainable business models and/or established, resonant brands that demonstrate long-term durability in cash and profit generation. One favoured holding is Nintendo.

Lindsell invests for the very long term, which is why the fund’s turnover is among the lowest in the sector. He normally sells a company when its share price reaches a level considerably at variance with his valuation target, and then only when he sees alternative undervalued and exceptional businesses he would like to buy instead.

October 2020

This exchange-traded commodity (ETC) aims to track the daily spot price of gold and physically invests in the metal in the same proportion as the value of the ETC. The gold bars allocated in this ETC for investors are held in a separate account in JP Morgan Chase Bank’s vaults.

Many commodity funds choose to gain their exposure by buying derivatives, but we like the fact that this option buys gold directly. For investors who are worried about the general market, gold can act as a haven and this is a large popular option that investors like. Ongoing charges are 0.16%.

September 2020

The flexible, go-anywhere strategy of M&G Global Macro Bond means it continues to rank as a decent core diversifier. It currently yields 1.5% and pays dividends quarterly. Jim Leaviss has run this fund in its various iterations since its inception in 1999. He can invest in any type of fixed interest security in the world. His focus in recent years has been on highly rated bonds.

Leaviss uses his flexibility to take advantage of different economic conditions and global trends, including interest rate movements and inflation. His assessment of these macroeconomic factors determines the asset classes in which the fund invests, and influences the portfolio’s mix of interest rate risk, credit risk and currency exposure.

This approach means Leaviss can constantly reassess value from among the whole range of different bond types, from ‘safe haven’ government bonds to riskier corporate and emerging market bonds.

Leaviss actively manages the types of bond in the fund and their maturities, and by using derivatives believes he can ensure the fund is able to perform in all types of market conditions. He can also invest in any currency, offering further diversification benefits.

October 2020

This fund tracks the Bloomberg Barclays UK Government Float Adjusted Bond index. It invests in most UK government bond issues across all maturities. Income is distributed quarterly.

The fund is run by a very experienced and well-resourced team from Vanguard, the second-biggest provider of exchange-traded funds. It is competitively priced, with ongoing charges of 0.12% and an accurate tracker to gain exposure to the UK conventional gilts market.

October 2020