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Alpha attack: four wealth managers' top investment ideas

We find out where four wealth managers see the best alpha opportunities in markets.  

Richard Parfect, Fund manager and specialist assets research specialist, Seneca Investment Managers, Liverpool

‘The perfect specialist asset should be both safer than your average equity as well as higher yielding than your average bond.

‘Fairoaks Income fund (FIF) is a good example. It invests in mezzanine and equity tranches of collateralised loan obligations (CLOs) that themselves are invested in senior secured loans. Importantly, the equity positions in the CLOs are typically controlling positions. This allows FIF’s manager to wind up a CLO when it enters run-off rather than being held hostage to the whims of the manager of the CLO.

‘After almost two years of life, FIF’s cumulative default rate is just 0.03%. This is due to the fund largely avoiding the energy sector, where defaults have been much higher.

FIF currently offers a dividend yield of above 10%, though be aware that although listed in London, the currency exposure is US dollars.’

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Richard Parfect, Fund manager and specialist assets research specialist, Seneca Investment Managers, Liverpool

‘The perfect specialist asset should be both safer than your average equity as well as higher yielding than your average bond.

‘Fairoaks Income fund (FIF) is a good example. It invests in mezzanine and equity tranches of collateralised loan obligations (CLOs) that themselves are invested in senior secured loans. Importantly, the equity positions in the CLOs are typically controlling positions. This allows FIF’s manager to wind up a CLO when it enters run-off rather than being held hostage to the whims of the manager of the CLO.

‘After almost two years of life, FIF’s cumulative default rate is just 0.03%. This is due to the fund largely avoiding the energy sector, where defaults have been much higher.

FIF currently offers a dividend yield of above 10%, though be aware that although listed in London, the currency exposure is US dollars.’

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Amanda Tovey, head of direct equities, Whitechurch Securities, Bristol

‘An investment trust that has caught my attention recently is Impax Environmental Markets. This trust is operating in an interesting area, focusing on companies that provide products or services in environmental markets, in particular looking at areas such as alternative energy, water treatment, energy efficiency, pollution control, and waste and resource management.

‘With themes such as increasing population, rising business standards, infrastructure deficit, finite natural resources and pollution continuing to be of growing global concern, more efficient delivery of basic services will be key.

‘The Paris COP 21 agreement should also act as a medium-term positive driver for growth in these areas as pressure increases to reduce CO2 emissions and countries start to implement the agreements made. As such, companies that can help achieve the goals set in Paris will profit, and it is these companies that the Impax trust will be looking at for investment opportunities.’

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Artur Baluszynski, Head of research, Henderson Rowe, London

‘Creating alpha requires looking at what’s out of fashion and going against the market consensus. This year, this means looking for risks to inflation moving to the upside, potential recovery in high yield energy markets and selected emerging markets.

‘The devil is in the detail and investors need to stress-test potential ideas before building any meaningful positions. Some energy credits will default and some emerging markets might see further deterioration, but patient investors will be able to lock in attractive yields and realise double digit gains.

‘Non-energy high yield instruments are preferred by many market commentators but the majority are still trading well above par, which means more risk to the downside if the default cycle turns. For an asset to offer an asymmetric risk/return profile it has to trade at what Sir John Templeton called “a point of maximum pessimism”, where negative sentiment trumps reality.’

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Christopher Thomé, Partner, TAMAC, Salisbury

‘The market offers two areas of opportunity – fading recession fears and the repricing of growth companies.

‘Without the spectre of a US recession, we are in for a period of gradually improving global conditions benefiting long term real growth companies. We especially like innovative global industry leaders. Many of them are US-based and have just come through a period of risk repricing – revenue and earnings growth can now be bought more cheaply than before.

‘Another focus is China, where we see the potential for the authorities to navigate a softer landing. A China growing at 6% per annum over the next four years would add the equivalent of the current UK GDP to the world economy.

‘We buy growth companies that are positioned to become leaders in their fields, within the Chinese market and potentially globally. These industry champions offer extraordinary growth rates at now much improved valuations.’

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