FE Invest awards ‘Buy’ ratings to Waverton European Dividend Growth, LF Miton US Opportunities and Man GLG Japan Core Alpha in latest Approved List review

• MI Somerset Emerging Markets Dividend Growth and Royal London UK Equity Income among funds removed

LONDON, 29 APRIL 2019:  Ten new funds have been given a ‘buy’ rating and four funds have been removed from the FE Invest Approved List of funds in the latest review.  FE Invest rebalances its list of preferred funds twice a year.

Rob Gleeson, FE’s Head of Research said: “Since our last review back in September, the end of the year saw an incredible run of continued stock market gains finally come to an end with the UK market falling 20% from its peak. While this has helped return valuations to more attractive levels and has taken away the uncertainty of when a market correction might come, the threats and uncertainties facing the long-term outlook have not reduced. The Brexit saga rolls on, the Chinese-US trade war continues and there are growing indicators of a global slowdown.

“The question, as always, is what does the future hold for investors. Our fundamental beliefs have not altered, which is that diversification remains an investor’s best defence against the many potential headwinds on the horizon. The latest changes to our Approved List reflect the funds we believe are best at their respective strategies within each asset class - strategies being selected for their suitability in a wide range of scenarios, not just their short-term success.”

FE Invest Approved List – fund changes by sector

Funds In

Waverton European Dividend Growth has been added because it doesn’t target a specific yield, believing that it can lead to a value trap. Instead, the central belief is that successful income investing over long periods is largely dependent on the ability of companies to deliver sustainable earnings growth that can both support and grow their dividends. Charles Younes, research manager comments: “This is not a high-yielding fund but makes up for it with capital growth. The portfolio is relatively concentrated at around 30 to 40 stocks, meaning stock selection is a key risk. It has a value tilt to complement other funds on the Approved List.”

The LF Miton US Opportunities fund typically holds between 35 to 45 positions and tends to be very different to the S&P 500. Charles Younes, research manager comments: “The allocation to small and mid-cap companies has typically been around 30% of the portfolio but can be much higher, and they have generally avoided large US tech names that are big constituents of the index.”

The Man GLG Japan Core Alpha fund takes a contrarian approach to Japanese equities. This means it builds a position in a company when its share price is becoming cheaper relative to other Japanese equities and reduces that same position when it gets more expensive. Charles Younes, research manager comments: “The team’s contrarian approach can be a tricky one to understand, since they effectively sell their winning stocks and buy back into the losers, often companies experiencing a lot of bad short-term publicity. However, this style has proved to be successful over the long term and highlights the managers’ ability to, on average, buy low and sell high.”

Funds Out

MI Somerset’s Emerging Markets Dividend Growth fund has been given a sell rating at this review.  Younes explains: “This fund had a tough couple of years, having underperformed due to a deliberate decision to underweight Chinese technology, which was considered too high-risk. This approach should have come to the fore in 2018, during what was a difficult period for markets, but in fact we saw the fund lose far more than we would have expected. We are no longer convinced that the fund provides the exposure to emerging markets that we are looking for.

“The removal of Royal London’s UK Equity Income fund is purely down to the fact that although we still rate the fund manager highly, he has sadly been forced to take a prolonged leave of absence due to ill health and we do not have a high enough conviction in those managing the fund in his absence to maintain our buy rating.”

The Standard Life Investments UK Equity Income Unconstrained fund had previously been held due to the managers’ high conviction positions in the UK economy. As we have had significant overseas exposure in our portfolios, we saw this fund as a useful hedge should the UK experience a strong economic recovery or there was a favourable Brexit result. Younes explains: “Recently we have identified a style shift within the fund, which has seen the manager change his approach to stock selection, which we believe will impact the risk return profile of the fund.”

FE Invest Approved List Methodology

FE considers all funds available for sale in the UK for the Approved List. FE data and ratings are used to identify a shortlist of top-performing funds. A qualitative selection criteria is then applied to produce the final recommended list. 

FE accepts no payment from any of the fund managers for their participation in the ratings or review process, or for their inclusion in the shortlist.

-ENDS-

NOTES TO EDITORS

About FE
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