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Citywire Selection: are the underperformers bouncing back?
by Matthew Goodburn on May 16, 2012 at 00:01
We take a look at Citywire Selection’s 20 biggest underperformers in 2011 and analyse their fortunes in 2012 based on their performance this year to the end of April.
This is our punchiest pick for investing in UK equities. It feels the pain when markets fall, as happened in 2011, but will tend to motor when they rise. As such, this pick is not for the faint hearted. However, if political and macroeconomic worries ease, do not be surprised to see a further push, as has already happened in the first part of 2012. In the year to date the Standard Life Investments UK Equity Unconstrained fund has returned 16.2%.
The trust’s manager, Mark Urquhart, does not let macroeconomic issues cloud his judgment on companies and the gradual shift of global GDP from West to East. The growth-orientated portfolio is another that should do well if global growth strengthens. The discount has swung widely of late, so keep an eye on this for an entry point with which you are comfortable. Some 40% of the fund is in North American stocks, with tech companies dominating. In the year to date the Edinburgh Worldwide Investment Trust has returned 15.8%, compared with the MSCI All Country World (GBP) index's return of 2.7%.
Schroder Income (under review)
Nick Kirrage and Kevin Murphy have had a tough time on the Schroder Income fund since taking the reins in May 2010. What was the top-performing fund of the decade in the sector had a poor 2011 as its disciplined value approach remained out of favour. The duo painstakingly pore over company accounts, trying to find undervalued businesses with strong fundamentals. Healthcare and financials are the main sector overweights while tobacco is shunned. The fund has started 2012 brightly with value stocks in favour. In the year to date the Schroder Income fund has returned 4.6%, compared with the FTSE 350 Higher Yield index's return of -0.4%.
Built on the Schroder Income strategy, this fund boosts income with covered call options and has achieved a 7% yield in every year since its launch in 2005. For those seeking income, there are few that can match this consistency, and although the capital return has disappointed recently, income of that magnitude is a powerful factor. After a disappointing period the underlying income strategy has seen performance pick up this year. In the year to date the Schroder Income Maximiser fund has returned 4.6%.
Karen Robertson has built up an excellent long-term record. However, the credit crunch has not been kind to her pro-growth stance, and while yield has remained competitive, the capital growth has been lacklustre. If the global economy strengthens, this fund will prosper. However, the lack of consistency relative to our other picks in the sector led us to remove the fund. Performance in 2012 has been promising, as cyclical companies have risen sharply as global growth fears have eased, but whether this can continue in the current climate remains up for debate. In the year to date the Standard Life Investments UK Equity High Income fund has returned 4.3%.
Invesco Perpetual Japan (under review)
It has been a difficult couple of years for Paul Chesson since a very strong 2009, meaning the fund was placed under review. More recently, Chesson has been recycling into domestic banks and technology stocks, which he believes are too cheap and likely to benefit the most from any meaningful economic recovery. The early signs are promising in 2012 that the strategy is starting to pay off. In the year to date the Invesco Perpetual Japan fund has returned 1.7%, compared with the Topix index's return of -0.8%.
Newton American (cut)
The fund was removed from Citywire Selection when Laing announced a move to Invesco Perpetual last year. A cautious hand helped the fund navigate rapid ups and downs in the US market, and it gained more than 20% in 2010 before struggling in 2011. Management has now been passed to BNY Mellon’s US subsidiary The Boston Company, and we are monitoring the transition and subsequent performance closely.
Last year was a poor one for Peter Eerdmans, as his currency calls detracted from performance. But 2012 has started much better, with both currency and debt appreciating. Emerging market debt is one of the only fixed-interest asset classes to be positive so far in 2012 - a sixth successive year of gains. Eerdmans feels that if there is a positive resolution in Europe then a rally in emerging market debt is likely. In the year to date the Investec Emerging Markets Local Currency Debt fund has returned 2.6%, compared with the JP Morgan EMBI Global Diversified index's return of 2.4%.
Robin Geffen underperformed the FTSE 350 Higher Yield for the first year in six in 2011. His high weighting to consumer-related stocks and materials companies cost him, but true to his style, Geffen sees the best opportunities coming from companies that have an emerging market focus and right now these opportunities come from those sectors. Always a fund to offer an attractive yield, this is one to consider if you have a positive view on the coming years. In the year to date the Neptune Income fund has returned 4.4%, compared with the FTSE 350 Higher Yield index's return of -0.4%.
Fidelity Special Situations (under review)
Sanjeev Shah endured a tough 2011 in which his contrarian value views remained out of favour. His continued belief that over the medium term there will be a turnaround in banks has hit performance hard, along with stock specific issues with Yell and more recently Ocado. As a result we have put the portfolio under review, but still see potential for his style, and 2012 has started brightly as value investing has returned to favour. In the year to date the Fidelity Special Situations fund has returned 7.6%, compared with the FTSE All-Share index's return of 2%.
Schroder Corporate Bond (cut)
After a period of consistent outperformance, manager Adam Cordery had a difficult 2010 and 2011, which led to this fund being cut from Citywire Selection. Cordery is trying to profit from a fall in government bonds which helped performance in the first quarter of 2011 but since then, the gains were given back, as its large exposure to financials weighed on performance. In the year to date the Schroder Corporate Bond fund has returned 5.6%, compared with the BofA Merrill Lynch Sterling Corporate Bond index's return of 4.7%.
The trust has bounced back in the first part of the year after a tough 2011 for the region. Negative sentiment has seen the trust move to a discount and returns are likely to remain volatile. Will Landers is backing domestic sectors in Brazil, has an overweight position in the country’s banks, and also around 20% exposure to Mexico. In the year to date the BlackRock Latin American Investment Trust fund has returned 2.4%, compared with the MSCI EM Latin America (USD) index's return of 0.6%.
This is one of our more exciting picks with a strategy based around the influence of changing consumption habits around the world. Peter Kirkman looks to areas such as demographics, healthcare, changing lifestyle needs and demand for Western brands selling into emerging markets. The cyclical nature of the fund, as well as direct exposure to China, has given Kirkman a tough time of late, but this is one to back for consumption in emerging markets, with no exposure to mining. In the year to date the JP Morgan Global Consumer Trends fund has returned 3.8%, compared with the FTSE World (GBP) index's return of 2.7%.
Templeton Global Bond endured a rare poor year in 2011 due mainly to manager Michael Hasenstab’s overweight to emerging market debt, which took a hit when risk aversion was high. Sizeable allocations to South Korea and Hungary also hurt performance through the year. Overall, Hasenstab is positive on the belief that Europe has avoided its 'Lehman moment' and that the sell-off has been overdone. His focus on countries with low debt levels, and his track record of making the most out of currencies, means we keep faith with his style. In the year to date the Templeton Global Bond fund has returned 1.8%, compared with the JP Morgan Global GBI Unhedged index's return of -3%.
JP Morgan Asia (under review)
A large allocation to India cost Edward Pulling in 2011 as the country markedly underperformed the region and other emerging markets. This has dragged his three- and five-year numbers to some way under the benchmark, and as a result we are closely monitoring the portfolio. This is our only pure value play in our Asian selections, and although that certainly has not been the place to be in the short-term, there are periods when this style wins. In the year to date the JP Morgan Asia fund has returned 4.6%, compared with the MSCI AC Far East ex Japan (USD) index's return of 6.3%.
This fund can underperform in the short term, but long term its risk-averse nature has paid off. Mundy believes the global economy can only get past our current predicament with pain, be that to savers, creditors, governments or tax payers. He employs various hedges in the portfolio to protect against this worst-case scenario with one third of the fund in index-linked bonds, Norwegian bonds and gold shares. To counter that defensive stance his contrarian style has led him to internationalise the portfolio in recent months, moving part into Japan and sovereign-debt-blighted Europe. In the year to date the Investec Cautious Managed fund has returned 2.5%, compared with LCI FTSE All-Share TR/ML Strlng Mkt performance of 1.7%.
Sarasin AgriSar attempts to invest across the entire agricultural spectrum, and unlike others attempts to blend investment in the companies involved and also the underlying commodity. The effect of this is to reduce the overall risk of the portfolio from a pure equity investment. This is why we have favoured it; it is not prone to the same volatility as its competitors, but still provides access to one of the most exciting themes in investment. Be warned, though, as there is a performance fee on this fund for outperformance of its benchmark. In the year to date the Sarasin AgriSar fund has returned 4.6%, compared with the FTSE World (GBP) index's return of 2.7%.
Clive Beagles and James Lowen had a tough 2011 due to their high weighting to medium-sized companies, which reversed the strong gains from previous years. This exposure is larger than many of its peers and recent additions have included sold-down consumer-facing stocks, which they are bullish about. The fund is very underweight banks and the duo are wary of tobacco and utilities, which they view as vulnerable to government tax grabs. With the fund recently reopened to investors, this is one that should perform well if macro sentiment improves. In the year to date the JOHCM UK Equity Income fund has returned 5.2, compared with the FTSE 350 Higher Yield index's return of -0.4%.
Richard Hodges believes the global slowdown will continue and is predicting lower growth than consensus forecasts. He admits to having been too optimistic about economic growth up until the summer of 2011 which impacted performance, but has added to government bonds and reduced high-yield exposure, due to concerns on further problems for European banks. In the year to date the Legal & General Dynamic Bond fund has returned 6.5%, compared with the LCI iBx GBP Cor/Citi WGBI/ML HY/FT Bri Gvt A stk 7 index's return of 5.1%.
This remains one of the best performing funds in the region over the long term. Oleg Biryulyov and Sonal Pandit remain uninvested in Hungary, while their aversion to state-run companies means they are hugely underweight Gazprom and prefer stocks that can benefit from domestic Russian demand. This hurt performance last year due to the strong prevailing oil price, but the fund has had a strong start to 2012. In the year to date the JP Morgan New Europe fund has returned 5.5%, compared with the MSCI EM Europe TR USD index's return of 3.3%.
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Look up the funds
- Standard Life Inv UK Equity Inc Unconstr Inst Acc
- Schroder Income A Acc
- Schroder Income Maximiser A Acc
- Standard Life Inv UK Equity High Alpha Inst Acc
- Invesco Perpetual Japan Acc
- Investec Emerging Markets LC Debt A Acc Gross GBP
- Neptune Income A Acc GBP
- Fidelity Special Situations Acc
- Schroder Corporate Bond A Inc
- JPM Global A Acc
- JPM Asia A Acc
- Investec Cautious Managed A Acc Net
- Sarasin AgriSar A Acc
- JOHCM UK Equity Income GBP Acc Retail
- Legal & General Dynamic Bond Trust R Acc
- JPM New Europe A Acc