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Citywire Selection: who's in and who's out

Our bi-annual review of the constituents in Citywire Selection has taken place and readers of our weekly magazines will by now have received their new supplement.

Citywire Selection was launched in January 2010 and looking at the latest performance figures at 31st August 2011, our active picks have generated strong outperformance. Relative to the appropriate index assigned to the funds, 81% have outperformed over five years, 73% over three years and 56% during the last 12 months.

The latest analysis has seen six funds added to our list and nine removed giving a total of 134 picks. Here we take a look at the changes:

Added

The Cazenove UK Smaller Companies fund, under the guidance of Citywire AAA rated manager Paul Marriage, makes the grade for his consistent outperformance. Marriage does not hold oil and gas stocks, which can often boost returns in this space, as he prefers to invest in companies based in the UK.

Walker Crips duo Jan Luthman and Stephen Bailey now have their Equity Income fund, as well as UK Growth fund, in Citywire Selection. The CF Walker Crips Equity Income fund has outperformed the FTSE 350 Higher Yield Index in each of the last seven calendar years and we are happy to further back the astute duo.

We welcome back two ex-Gartmore funds, with the managers making the transition to Henderson and now settled in. Namely Henderson Cautious Managed run by Chris Burvill and Henderson UK Absolute Return managed by Ben Wallace and Luke Newman.

In the commodities space Investec Enhanced Natural Resources has lived up to its billing of limiting the downside in this volatile asset class with managers Bradley George and George Cheveley using short positions to smooth returns. 

Pictet Clean Energy under the stewardship of Luciano Diana and Xavier Chollet also makes the grade. The asset class has had a difficult time but we now back this active pick to replace our previous passive option.

Removed

The Newton Income fund was taken over by Richard Wilmot in April as Chris Metcalfe stepped aside. In such a competitive space, we prefer to focus on managers that have experience of a decade or more.

Another fund in the UK All Companies sector, the CIS Sustainable Leaders Trust, which follows an ethical remit, has seen performance tail off. Although commodity sectors, which led the recovery, are outside the fund's universe, stock selection has affected performance.

The Newton Higher Income fund has had its own challenges and we feel the rigid process has affected the balance between yield and capital growth. We are comforted by the recent decision to rebase the dividend distribution and we will monitor the situation to see if this aids a sustained turnaround, given the wider pool of stocks available.

A further change in the Income sector has seen the Edinburgh Investment Trust run by Neil Woodford removed due to its high premium. We first added it to Citywire Selection in 2010 when the discount was nearly 10%. Since then it has steadily narrowed and the average premium over the last year is 5.5%. We now prefer direct access to Neil Woodford’s Invesco Perpetual High Income fund.

Capacity constraints mean the Schroder US Smaller Companies fund is now off our list and the iShares S&P Global Clean Energy fund has been replaced with the active Pictet pick above.

Neptune's US Opportunities fund is near the top of its sector over the last five years, but a number of sector rotations have not been rewarded and performance has deteriorated. Sustained outperformance in US equities is proving difficult for many an active manager.

The IM Hexam Global Emerging Markets fund run by Bryan Collings and Grant Shooter is a concentrated portfolio that has struggled to keep up with the market due to avoiding momentum led stocks. The aggressive nature of the fund means it could motor during a rally, but we believe the ability for long term outperformance is more challenging.

The Threadneedle Absolute Return Bond fund has been struggling to find its feet since a strong showing in 2007 and 2008. Following the departure of two team members, fund manager Qunetin Fitzsimmons has bolstered the team and performance could be resilient in difficult conditions through its bond and currency positions. But we feel that a return to consistent positive returns might prove more challenging to come by.

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Simon Nichols
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19/70 in Mixed Assets - Flexible GBP (Performance over 1 year) Average Total Return: 7.48%
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