Investment Week surveyed leading advisers to get their opinions on which funds and managers will deliver the best returns over the next 15 years
Selecting a fund to see investors through to 2025 is not a task relished by the advisers, wealth managers and multi-managers surveyed by Investment Week. Managers move and styles change. Predicting markets is dangerous too.
Individual recommendations vary, although there are consistent traits to each selection. Advisers still believe in the long-term potential of equities and importance of asset allocation. They identify Emerging Markets and China as the drivers of growth.
But it is the manager who makes the fund. The combination of solid allocation and stockpicking, long-term experience and each manager’s commitment to their fund is vital.
John Chatfeild-Roberts, manager of the Jupiter Merlin multi-manager team, has a simple way to cut down the number of funds under consideration.
He says: “I think you have to go back to first principles – and the first is whether a fund manager will be alive in 15 years’ time. Secondly, whether they will still have the desire or hunger to manage money, and only thirdly whether the way they manage money will stand the test of time.”
His long-term interest in Findlay Park American Smaller Companies predates the fund’s launch. Chatfeild-Roberts says: “I first invested with James Findlay in 1992, so we have had 17-plus years with him so far. His investment principles are based on those of Benjamin Graham and Warren Buffett, and I suspect anyone who is still cutting the mustard in 15 years’ time will have the same approach to investment.”
Nick Sketch at Rensburg Sheppard has four criteria for a fund to qualify as a sensible ‘fire and forget’ investment.
Stable management in style and personnel tops his list of requirements. “Either the current manager needs to be fairly likely still to be running it in 15 years, or there need to be other strong reasons to believe that what we buy into today will still be recognisable in 15 years. This cuts out most unit trusts and most smaller funds of any sort, and most hedge funds, at a stroke,” he says.
The investment focus is next under the spotlight. Investing in a single narrow style for long periods looks unnecessarily brave, thinks Sketch. He says: “Thus, funds of hedge funds are out, and so are gold funds and China funds, whatever their apparent attractions today.”
Charges also get the once over. They must be reasonable, given how easy it is for investment returns to ‘revert to the mean’ over extended periods.
Finally, the asset class consideration comes into play. Given the timescale involved, Sketch says the fund needs to invest primarily in risk assets such as equities.
Out go purely cash and bond funds, no matter how well run they are. But the asset classes themselves come in handy, says Sketch. “A manager who adds value by raising or lowering their equity exposure as circumstances dictate can still be better than one who is always fully invested in equities.”
Tom Dobell’s comparative youth and the size of his M&G Recovery fund make him a candidate as a long-term call. But Dobell covers only English-speaking companies, mainly in the UK. Sketch prefers the wider view of investment trusts such as Foreign & Colonial, Monks, RIT Capital or Templeton Emerging Markets.
But even over the chosen timescale, these trusts may be too volatile for ‘fire and forget’ investors. His final choice is SVM Global fund which, despite recent tough relative performance, shows off the skills of manager Colin McLean and the benefits of a value-hunting, index-unaware approach to long-term investment.
Sketch adds: “The portfolio has a number of different investment themes, none of which have changed in the last few years. About half is invested in active equity-based managers in which the team has particular confidence, and with a strong bias toward the Emerging Markets of Europe and Asia and away from the UK & US.”
The rest of the trust is invested in a long-standing list of hedge funds and commodities, private equity and property, making it a strong multi-asset portfolio.
Adrian Lowcock of Bestinvest disagrees with Sketch’s view on Tom Dobell’s M&G Recovery fund. He says: “The fund has been around for over 40 years now, with only three managers in that time. It has maintained a robust process throughout its 40-year history and should be considered a core UK holding for many investors.”
Ashcourt Rowan’s Tim Cockerill likes the M&G fund too. “If you are planning for 15 years, you want a fund that will be around then. M&G has got the pedigree and the resources. Tom’s fund has a big loyal unit-holder base. He is strict about who can invest – you do not want multi-managers jumping in and out all of the time,” he says.
As a pure allocation, the accent is on Emerging Markets. Richard Wallis, head of research and investment at Origen, says: “I would be looking towards the emerging markets, which are likely to represent a greater share of global GDP in years to come. This would also provide exposure to China and India as well as more developed areas such as Brazil and take advantage of other less-developed regions such as Indonesia.”
Among his highest rated funds is First State Global Emerging Markets Leaders. Its diversified portfolio across Latin America, Asia and Emerging Europe makes for a compelling argument, providing manager Angus Tulloch stays in place.
John Husselbee of North Investment Partners is also a Tulloch fan, opting for the Asia Pacific Leaders fund. “The fund’s mandate allows investors to entrust all their decisions, about which areas of this diverse region to favour and which companies will make the best investments, to one of the safest pairs of hands in the industry. Angus Tulloch’s focus on quality companies should not only deliver excellent long-term returns for investors but should also make for a smoother journey,” he says.
Darius McDermott at Chelsea Financial Services picks out the Allianz BRIC Stars fund, which invests in the four biggest emerging markets. Volatility may continue in China but its growing demand for resources and commodities will support the other countries covered by the fund.
“Michael Konstantinov and his well resourced team have a strong track record and he is old enough to still be here in 15 years,” says McDermott.
Bob Turmel, director at FirstRand Private Wealth Management, narrows the choice even further. He opts for Ashburton Chindia Equity, run by Jonathan Schiessl. He says: “This equity fund was one of the first retail funds to focus solely on the Chinese and Indian markets, with a mandate to achieve long-term capital growth through equity or equity-elated investments.”
Rob Burdett of Thames River apologises for picking an affiliate company in Nevsky Emerging Markets. “In our defence, we did invest with these guys at launch in 2003 and have held a position with them ever since. The Nevsky team is the best in the business with a good mix of bottom-up stock selection disciplines and market awareness aided by their long/short skills,” he says.
With many investors having a ‘structural’ long bias to the area, share prices may be up with events short term. Burdett expects relative rewards may come later in the chosen investment period.
A handful of fund selections fall outside the Emerging Market box. While Justine Fearns of AWD Chase de Vere is taken by Aberdeen Emerging Markets as a pure GEM play, she opts for a tighter sector focus. She likes financials such as Jupiter Financial Opportunities, run by Philip Gibbs.
Fearns says: “This is a long-standing fund, managed by a long-standing manager. It is dominant in the marketplace, and given the importance of the financials sector in the global economy, it should continue to find opportunity and generate returns for investors over the longer term.”
Succession is less of a problem too as New Star’s Guy de Blonay is back at Jupiter.
Brian Dennehy of Dennehy Weller courts controversy, given the losses suffered by long-term investors in his chosen region: Japan. “Buy the M&G Japanese Smaller Company fund. It has performed substantially better than the small number of alternatives over the last year,” he says.
The fund is run by Dean Cashman and Max Godwin. Dennehy expects it to do well as a long-term value play. He is encouraged by the deep pessimism, poor expectations and rock-bottom stock market values in Japan.
Analysts remain divided over the country’s prospects. One calls it a ‘Weimar-in-waiting’, others say a new government can restructure the economy. That foreign investors are nowhere to be seen adds more to his argument that Japan has ‘buy’ written all over it. Investors should make regular payments into the M&G fund to benefit from volatile markets.
Socially Responsible Investment funds appear to have little long-term lure for advisers on the Investment Week panel. Worries about global warming, the lack of progress at the recent Copenhagen Summit and the threats and opportunities green issues pose have not filtered through to their investment decision making. The lack of enthusiasm may partly explain why retail SRI funds have failed to capture a larger market share in the UK.
Just one adviser picked a fund with an environmental twist. Sheridan Admans, investment adviser at The Share Centre favours Schroder Global Climate Change, which is structured around five investment themes: energy efficiency, clean energy, environmental resources, low carbon fossil fuels and sustainable transport.
Admans says: “Its managers are free to invest globally in companies that offer the greatest opportunities for investors. As such, we feel that the Schroder Global Climate Change fund is best positioned to benefit from changing global themes over the next 15 years.
“Whether as an investor you are concerned with eco-trends or not, this fund invests in global large, medium and small companies that strive to improve innovation in various technologies – for example, a company that has developed energy-efficient insulation or energy-efficient light bulbs to turbine technology,” he says.
The fund has been jointly managed by Matthew Franklin and Simon Webber since its inception in September 2007. Over a short track record, Franklin has, period by period, consistently managed to outperform the peer group, adds Admans.
Surprisingly, many of the names that set the investment scene throughout the last 15 years get little mention. Fidelity’s Antony Bolton may have deferred his retirement to start running money again, but few advisers expect him to still be at the helm of his new China-centric venture in 2025.
But there are a few old-school managers who may still be making money for investors by then. Mick Gilligan of Killik and Co is placing his trust in the hands of Neil Woodford of Invesco Perpetual and William Littlewood.
Gilligan explains his emphasis on long-standing managers: “It takes a good 10 years to establish whether a manager is any good or not. They also have to be on the right side of 45 or close enough for the long term, which cuts down the field.”
He expects a ‘proper’ bear market with in the next 10 years. If that is the case, he says investors need a manager who can protect capital in the bad times and make money when markets are more positive. Having called the dot.com bust correctly and positioned his Income and High Income funds defensively in this recession, Woodford’s negative views may triumph again.
Littlewood made his name at Jupiter in the 1990s but has been off the retail radar running the Absolute Return Hedge fund for Artemis. His new Strategic Assets fund should bring him back into focus.
Mark Dampier of Hargreaves Lansdown is reluctant to make an asset allocation call, but in the spirit of the challenge, he also opts for Littlewood, with Philip Gibbs a close second.
“The reason? Because if William is still around over the next 15 years, his fund will have been one of the most successful because he will still be running the money. I have known William since the early 1990s and both his macro and stockpicking skills are and have been extremely good. I continue to believe he is one of the top managers in our industry today along with the likes of Philip Gibbs, Neil Woodford and Crispin Odey,” he says.
