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Citywire Selection: Our top 20 fund picks

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by Matthew Goodburn on Sep 20, 2012 at 11:31

The waiting is over. We reveal Citywire Selection's latest 20 star fund picks. These 20 funds represent our highest conviction investment ideas for the rest of 2012 and act as a taster for our updated full list of the UK's best 119 funds, ETF's and investment trusts which we will reveal next week.

TrojanSebastian Lyon

Lyon has continued to produce solid returns in 2012. Gold and index-linked bonds were the cornerstone of the 8.7% return in 2011, which was a tenth consecutive calendar year of positive returns. The portfolio remains broadly unchanged and although asset classes that lead the way one year have a tendency to lag in the next, this fund has held firm. A third of the portfolio is in high yielding blue chip equities which along with cash at 17%, continues to highlight Lyon’s bearish stance.

Over the last five years to the end of July the fund has returned 53%, compared to a 19% return by the average Citywire Mixed Assets Absolute Return manager.

Aberdeen Asia Pacific & JapanHugh Young

Hugh Young’s large underweight position to Japan, coupled with exposure to the booming Asean region has been a major positive for the performance of the fund in recent years. The fund maintains a healthy exposure to India - a market that has lagged in recent years and which adds a little bit of spice to the portfolio. It tops the sector over all meaningful time frames.

Over the last five years to the end of July the fund has returned 48%, compared to the 13.7% gain in the benchmark index.

First State Asia Pacific LeadersAngus Tulloch

Angus Tulloch and Alistair Thompson’s philosophy of selecting quality companies has seen them continue to deliver positive returns and add value in a difficult period for Asian equities. They are consistently the least volatile investors in Asia, yet not at the cost of returns. While in good periods they will lag, they leave all in their wake during bad periods. Still the best Asian investors we track.

Over the last five years to the end of July the fund has returned 69.4%, just shy of double the 35.8% return of the benchmark index.

GLG Japan CoreAlpha - Neil Edwards, Stephen Harker & Jeffrey Atherton

GLG Japan’s style of investing in the best value areas in Japan’s larger companies has fallen on hard times over the last year and a half. The persistently rising yen has hit returns and led them to lag the Topix index but key bets in banks and technology will bear fruit if the currency weakens. The style can go through difficult periods but the disciplined large cap value approach has helped them be the standout long-term outperformers.

Over the last five years to the end of July the fund has returned 12%, compared to a 5.7% loss in the Japanese Topix index.

Fidelity Moneybuilder Income - Ian Spreadbury

Ian Spreadbury sees financials as a risky area and holds just 11% in the sector, one of the lowest in the peer group. His steady approach has created consistently strong risk adjusted performance and the fund is also backed by a 3.5% yield. Spreadbury is focused on liquid parts of the market, strong consumer and utilities companies and also has exposure to asset backed securities that are secured on property sites.

Over the last five years to the end of July the fund has returned 44.3%, compared to the 40.5% gain in the benchmark index.

Kames High Yield BondPhilip Milburn

Despite being a high yield fund, this portfolio remains at the defensive end of that scale. It looks for only the highest quality companies within the more adventurous bond sector and the strategy appears to be paying off. Milburn and co manager Melanie Mitchell have managed to better the peer group in all but one of the last seven years. Despite taking in large inflows the focus on safety means he operates at the most liquid end of the high yield bond market.

Over the last five years to the end of July the fund has returned 54.8%, compared to the 59% gain in the european high yield benchmark.

M&G Optimal IncomeRichard Woolnough

Richard Woolnough believes 'the banking model is broken'. This means he has just 20% exposure to financials in the portfolio, which is much less than most of his peers. Instead he thinks the rewards on offer from corporate bonds is high and also has over a third of the portfolio in high yield bonds. The fund allows him to invest in all parts of the bond market and government positions have been added to positive effect in times of market stress. We rate Woolnough as one of the best and most versatile bond managers in the UK.

Over the last five years to the end of July the fund has returned 67.8%, compared to the 61% gain in the benchmark

BlackRock Gold & GeneralEvy Hambro

The disconnect between the strong performance of gold and the lacklustre performance of the companies that mine and refine the element has been one of the most striking phenomena of the past five years. Gold companies generally make the most of the higher gold price and have historically outperformed the yellow metal. While we would be surprised if the trend fully reverses given the value of gold, it has continued to widen and we feel this could be a good opportunity to access any reversion to the mean over the coming years. Hambro is an excellent commodity investor and the fund also has a reasonable level of exposure to silver and other metals through diversified mining plays.

Over the last five years to the end of July the fund has returned 48.3%, compared to the 53.1% gain in the benchmark index.

BlackRock European Dynamic - Alister Hibbert

Alister Hibbert is backing a mix of defensive consumer stocks and consumer names with high exposure to emerging markets. Financials remain a key underweight and his punchy approach continues to deliver outperformance both recently and over the long term. We back this as a star pick for a strong uplift during a potential rebound in European equities.

Over the last five years to the end of July the fund has returned 40%, compared to the 8.7% loss in European equities.

First State Global Emerging Market LeadersGlen Finegan & Jonathan Asante

Jonathan Asante and Glen Finegan follow the First State Stewart house style of avoiding government backed companies in emerging markets and focus on companies with strong corporate governance. They have a defensive bias with a third of the fund in consumer staples and look for companies with conservative debt levels, predictable earnings and steady cash flows. The profile of the fund tends to mean it lags a rising market but comes into its own in downward phases. A true buy and hold for the long term.

Over the last five years to the end of July the fund has returned 77%, compared to the 27% gain in the benchmark index.

First State Greater China GrowthMartin Lau

No fund has been as consistent as this for investment in the greater China region of China, Hong Kong & Taiwan and it tops the peer group on every risk and return metric we look at. Lau has achieved this by sticking to the First State Stewart discipline of owning quality companies with strong management. Typically we expect the fund to deliver its outperformance during the bad times, but it has been achieved in both good and bad more recently. This has been a tough start to the year for the region, but we heartily recommend it for those looking to invest in the world’s second largest economy.

Over the last five years to the end of July the fund has returned 50.7%, double the 23.7% gain in the Golden Dragon index.

Aberdeen World EquityStephen Docherty

For the past three years, Stephen Docherty has been convinced that growth estimates are too optimistic and he remains in cautious mode. Diversification across countries means nearly a quarter of the fund is invested in the US, with sizeable allocations to the UK, Switzerland and growth hubs in Asia. Portfolio turnover is low but he is keeping an eye out for new opportunities where strong cash flows are a key metric. The fund outperforms in falling markets but will tend to lag in strong rallies. A great pick for volatile markets.

Over the last five years to the end of July the fund has returned 31.4%, compared to a 20.3% return in world equities.

Jupiter Merlin Growth PortfolioAlgy Smith-Maxwell, Peter Lawery & John Chatfeild-Roberts

This fund of funds has generated strong long term outperformance. With so much ongoing uncertainty, the managers are sticking to a mix of defensive managers and pockets of growth such as Asia and a 5% position in Latin America. Gold and cash each make up around 7% of the portfolio.

Over the last five years to the end of July the fund has returned 20%, compared to the 20.3% gain in world equities.

Threadneedle UK Equity IncomeLeigh Harrison & Richard Colwell

Leigh Harrison & Richard Colwell have been consistently among the best in their peer group for many years. They are steady performers who always bear the risks in mind and as a result there are underweights in the financials, energy and materials sectors. They favour a blend of consumer services, utilities and health care companies with industrial mid-cap names providing the growth. We back this fund’s steady approach to outperform in almost any climate for equities.

Over the last five years to the end of July the fund has returned 24.6%, compared to a meagre 1% gain in the FTSE 350 Higher Yield index.

Veritas Global Equity IncomeCharles Richardson & Andy Headley

This fund has done extremely well since launch in 2005, handsomely outperforming global equities and delivering yield consistently greater than 4%. This pair don’t care where companies are based but instead look for stocks on attractive valuations with strong revenue growth and barriers to entry to ensure dividends are achievable. The fund has maintained a strong bias towards Asia and has a large underweight to North American companies.

Over the last five years to the end of July the fund has returned 59.2%, nearly triple the 20.3% gain in world equities.

Ecclesiastical Higher IncomeRobin Hepworth

2011 was a rare year of underperformance for Robin Hepworth, but the first half of this year has been good for the fund and Hepworth is one of Citywire’s top ten most consistently rated fund managers over the past decade. He has achieved this in part by completely ignoring what his competition is doing and what his benchmark is telling him. Frequently seen to go off piste, he has a particular preference for Asian companies, and is extremely underweight North America. Hepworth has also been recently upping exposure to continental European utilities companies and even buying high yielding preference bonds. This fund is certainly not plain vanilla but Hepworth is an extremely shrewd manager who always finds the best value. One of the best kept secrets in fund management.

Over the last five years to the end of July the fund has returned 35.3%, double the 17% gain in the composite bond and equity index.

First State Global Listed InfrastructurePeter Meany

Infrastructure is a compelling investment offering both protection against inflation, and the promise of a steady income. This type of company tends to be typically defensive and high quality. Meany has delivered steady returns above world equities through investment in utilities, toll roads and mobile towers and will almost always beat a falling market and lag in a rally. It’s not all defensive however, with many of its holdings having significant emerging market exposure. One to pick if you are after steady, but not flashy returns, and a yield of 3%.

Since the launch of the fund in October 2007 to the end of July the fund has returned 25.3%, compared to a 10.2% rise in the global infrastructure benchmark.

AXA Framlington UK Select OpportunitiesNigel Thomas

Nigel Thomas has a shrewd knack of picking profitable global investment trends and his long term track record is among the best of the 1,800 managers tracked by Citywire in the UK. Key current themes include the impact of cheap natural gas, a sustained US recovery and technology. He continues to outperform in these volatile markets.

Over the last five years to the end of July the fund has returned 27.4%, well ahead of the 6.9% rise in the FTSE All Share.

JOHCM UK OpportunitiesJohn Wood

This is the least volatile fund in the UK All Companies sector over three and five years yet comfortably outperforms the index. Such a unique risk/reward profile is rare. Wood and co-manager Ben Leyland focus on stocks and sectors that generate high returns on capital, which they believe is vital in a low growth environment. This astute approach helps the fund outperform, especially in downward markets, with Wood also holding over 10% in cash when valuations are deemed too high.

Over the last five years to the end of July the fund has returned 36%, easily above the 6.9% gain of the FTSE All Share.

Jupiter Growth & IncomePhilip Matthews

Philip Matthews’ track record shows he can strongly outperform in downward markets leaving him well placed to beat the market over the long term. He looks for established business franchises that can deliver sustainable organic growth and valuations are a key focus.He has proved adept at moving into selective cyclical areas on market lows and this helped lift the fund further in the second quarter of 2012. The 3.9% yield is an extra attraction to make this a star pick.

Over the last five years to the end of July the fund has returned 31.8%, comfortably in front of the 6.9% rise in the FTSE All Share.

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