Specialist funds vary in performance as small and niche groups contrast with biggest names in investment
With such a vast range of products having little or no correlation, the diversification of performance in funds under the IMA Specialist sector banner is no surprise.
But while it contains a number of smaller and more niche vehicles, the sector also houses some of the most respected names in fund management, including Jupiter’s Philip Gibbs and J.P. Morgan’s Ian Henderson.
Henderson’s £2.1bn Natural Resources vehicle has delivered a return of 35.1% over 12 months to 24 May, compared to a 27% IMA Specialist sector average, according to Morningstar.
The fund aims to provide long-term capital growth by investing in companies worldwide engaged in the production and marketing of commodities.
“I do not believe the biggest companies can go up hundreds of times in value,” Henderson says.
“They might be steady long-term investments, but the way to add value for investors is by evaluating reserves, deposits and oilfields at an early stage and seeing them through development.”
Henderson attributes the strong returns over the past year to a recovery in smaller companies he holds within the agricultural commodities and minerals sectors.
“They had a very bad year in 2007 and 2008 and then recovered enormously in 2009,” he says.
“A lot of the companies went up two or three times, if not more, and we have had some tremendous winners where the value of individual companies has gone up 10 or 15 times during the year.”
His strongest gain was from African Minerals, an iron ore project in Sierra Leone. The energy sector also contributed significantly, with the manager identifying the performance of Addax Petroleum, in particular.
General recovery of base metals meant there were good gains from some positions such as First Quantum Minerals, which did well during the course of 2009.
“A key factor for natural resources has been what happens to the dollar, because commodities and hard assets tend to go up when the dollar has been weak,” Henderson says.
“I think this factor is going to be less influential throughout 2010. What will be more influential is the pace and strength of the global recovery plus synchronised growth and final demand, which looks as though it is going to be reasonably good.”
Bradley George and Daniel Sacks’ Investec Global Gold fund is up 28.5% over one year and 61% over three years.
George says: “Volatility in bond and equity markets and concerns over the world’s major currencies have encouraged investors to seek alternative global stores of value.
“Moreover, demand for investors has been spurred on by expected pressure on prices from tight supply and rising demand.”
Over the longer term, George has a positive outlook on gold, based on a mix of macro and supply-demand drivers.
“As an asset with inherent value, gold is likely to appeal to investors concerned about the risk of inflation, instability caused by fluctuating oil prices, global economic imbalances and geo-political uncertainty,” the manager says.
However, George believes there are a number of factors that may adversely impact the gold price over the medium term.
He explains: “If the gold price declines, it is likely gold shares would also fall. Major production difficulties at one of the portfolio’s gold companies could also cause a fall in the fund price.”
Moving away from commodities, many of the top performers in the sector over the last 12 months are funds with a focus on Latin America, with the eight vehicles in the peer group all generating returns over 30%.
Jeff Casson’s Scottish Widows Latin American fund is up 40.4% over 12 months. On a three- and five-year view the fund is up 34.1% and 223.4% respectively.
Casson, who has managed the portfolio since October 2006, says: “The region had a difficult 2008, but in 2009 there was a strong rebound in the market.
“A lot of this stems from the fact Latin America was perceived to be more risky than it really was by a number of individuals after the collapse of Lehman in 2008.”
Performance was lifted by a number of the commodity names the manager owns, particularly in the steel sector.
The fund has also successfully exploited the domestic opportunity within each of the Latin America domestic markets, particularly in Brazil and Mexico.
A number of Brazilian stocks have performed particularly well over the last 12 months, including the IT company Totvs, which provides accounting software.
A couple of Brazilian stocks that focus on the domestic economy have also been strong performers, including retailer CBD and the telco GVT, which was acquired by Vivendi in April.
Brazil has been the largest position within the fund over the last couple of years. However, Casson recently cut exposure due to the potentially unsettling impact of the October general election.
As a result, he is more cautious on the outlook for Brazil in the medium term. However, he is positive on the outlook for Mexico, which he expects will be driven by the US recovery.
The US is the destination for about 80% of Mexican exports, and, Casson points out, this has fed through to employment statistics, particularly in the north of the country.
There are seven India funds in the IMA Specialist sector and all have significantly outperformed over the last 12 months.
Avinash Vazirani’s Jupiter India fund, which was launched in February 2008, is up 50.1% over the last 12 months.
The manager aims to identify stocks where there are strong growth prospects which have not been priced fully by the market. He also invests in deep value stocks where he feels there is a catalyst for a re-rating.
He says: “With over 7,000 quoted companies in India, there are many opportunities for patient investors to buy high growth businesses at attractive prices.
“India is also a very under-researched market characterised by modest analyst coverage, so there are many strong businesses that receive less attention than they might elsewhere.”
He believes this makes India an “excellent market” for stockpickers, and says: “I am a high-conviction investor, happy to build up large positions and run with them a long time, so long as I consider their growth prospects to be not fully reflected in the market.”
Vazirani believes Jupiter India’s strong performance is because he is not an index tracker.
The fund has been structurally overweight in consumer goods since launch because the manager believes in the overall India growth story.
He says: “I believe there is a good macro growth for the next 20 to 25 years.
“Most of the growth story in India is the domestic growth story, which is why I have been focusing on domestic consumers because it has been a very good sector in the past and will continue to be so.”
While the success of the India consumer sector has been the main driver of performance over the past 12 months, Vazirani says financials and utilities have also been major contributors.
