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David Kempton: 6 funds for scary times

Our experienced investor columnist has his annual brainstorm with the Hawksmoor investment team and returns with some fund tips.

by David Kempton on Apr 18, 2018 at 16:32

Fund picks for insecure times

At times of such high global insecurity, it is essential to have your core funds managed by an experienced skilled professional watching the machinations of world politics.

As a director of Hawksmoor Investment Management, I have my core money safely lodged with them and buy my own researched stocks as a side investment, not only for profit and reward, hopefully, but also for fun and stimulation.

Once a year I meet the Hawksmoor fund managers to challenge them to pick their winning stock for the year. The winner will be awarded a Toblerone bar, the loser a Brussels sprout. Although this sounds frivolous, competition is hot, and brings welcome relief from the pressures of managing £1 billion of client money.

Selected fund must be in either their public open-ended Vanbrugh or Distribution funds, both of which have had another outstanding year with their customary very low volatility.

How last year’s picks fared

Citywire A-rated Daniel Lockyer scooped the Toblerone thanks to the 15% rally in the shares of the India Capital Growth (ICG) investment trust last year.

A Brussels sprout meanwhile went the way of fello A-rated manager Ben Conway, who picked a gold equities fund for the fourth year in a row. Old Mutual Gold & Silver fell 13% last year.

Here are last year’s picks in full:

The funds chosen in 2017 continue to offer good value and I have retained all in my personal holdings. All have performed well in a world that’s offered modest returns, except the gold fund which proved disappointing, but maybe its time will come.

These performances reflect the UK main indices being up 1% to 2% over the same period. Pretty dull markets, but sometimes dull is good.

2018 fund picks

Their choices for 2018 again reflect the world we’re in. It’s not an easy time to pick a winning fund, but they have to – it’s what they do.

Fund selection is a different science from direct equity stock picking and should reflect a safer option, especially in such dangerous times. Choose your sector based on your judgment of the global scene, then research for the world’s best ‘in form’ specialist manager.

Ranger Direct Lending (RDL)

Picked by Daniel Lockyer

Launched in 2015, this £140 million investment trust provides alternative funding to US small and medium-sized companies and consumers, generally backed by assets or personal guarantee.

Daniel has made a strategic buy since the trust was hit by a bad loan two years ago. The shares are trading on a discount to net asset value of 18% if the loan is completely written off (judged as very unlikely) and 26% if their strong legal action prevails. The trust offers a fully covered dividend of 13%.

Polar Capital Global Insurance

Picked by Richard Scott

Manager Nick Martin has delivered attractive total returns from high quality companies in the international insurance sector. This can be a risky area, but the manager has demonstrated useful returns now for over 10 years.

Richard makes the point that given the murky outlook for global markets, he looks for demonstrably well-managed funds exploiting niche areas with proven dependability through different economic conditions.

Interestingly, Warren Buffett’s success with Berkshire Hathaway is founded on the success of its insurance operations, demonstrating the value achievable from well-run insurance businesses.

Old Mutual Gold & Silver

Picked by Ben Conway

Ben has plumped for the same fund as last year, selecting precious metals as the preserver of capital in a potentially turbulent year.

The equity of the gold miners looks very cheap now compared to the gold price. Investors still remember the 60% collapse in global miners in just six months in 2008. Nearly 10 years on, and the index is still down 45%.

Profligate management, then guilty of capital expenditure splurges with the easy money is a thing of the past. Costs are now tightly controlled with an exploitation process significantly improved.

Woodford Patient Capital (WPCT)

Picked by Hannah Isaac

Hawksmoor passed on the launch of Neil Woodford’s investment trust when it raised £800 million in April 2015, judging the fundraising too much for a focused fund.

But Hannah has watched as the heady premium attached to the shares in its early days swung to a discount that was widened over the last 12 months, before last month’s seeming inflection point.

The trust invests in quoted and unquoted companies focusing on early stage growth with two thirds in healthcare, where Woodford sees the sector on the cusp of a revolution driven by technology advances.

The bear market in healthcare with the political pressure on drug prices has undeservedly affected the whole sector, with the trust’s underlying stocks seemingly oversold.

Man GLG Undervalued Assets

Picked by Dan Cartwright

Dan considers the UK market to be undervalued, still unreasonably suffering from the Brexit vote of nearly two years ago.

As we approach ‘deadline day’ the uncertainty should naturally dissipate and investor sentiment improve for the UK market.

Managers Henry Dixon and Jack Barrat are unwavering in their pursuit of undervalued companies using their own well-proven analysis to seek them out.

Marlborough UK Micro Cap Growth

Picked by David Kempton

Manager Giles Hargreave has delivered 18% over one year and 78% over three on this fund, my pick for the year is not one to be found in Hawksmoor’s portfolios.

It’s a classic stock picker’s fund, paying no heed to markets, with much of the portfolio in stocks with a market cap below £150 million.

Holding this micro-cap fund may not lead to a quiet life, but I have faith in the long-term track record of this experienced manager. I would only hold the fund as part of a larger balanced portfolio.

We await events in the next year with some trepidation, but having my core money watched over by skilled operators enables me to sleep easily, even if they don’t.

David Kempton is non-executive chairman of Hawksmoor Investment Management and a non-executive director of Impax Funds Ireland. He is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.

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Look up the funds

  • Polar Capital Global Insurance A GBP Inc
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  • Polar Capital UK Value Opportunities I GBP Acc
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  • Hermes Asia ex Japan Equity R EUR Acc
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  • Polar Capital Biotechnology R USD
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  • Schroder European Alpha Inc A Acc
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  • Old Mutual Gold & Silver A USD
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  • Man GLG Undervalued Assets Professional Acc C GBP
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  • Marlborough UK Micro Cap Growth A Acc
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  • MI Hawksmoor Vanbrugh A Inc
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  • MI Hawksmoor Distribution B Acc
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Look up the investment trusts

Look up the fund managers

  • Giles Hargreave
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  • Jack Barrat
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  • Henry Dixon
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  • Neil Woodford
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  • Nick Martin
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  • Ben Conway
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  • Daniel Lockyer
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  • Richard Scott
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