23 October 2019
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Contrarian fund picks
Investment Week asks five fund selectors for the most contrarian fund picks they are using in their portfolios, amid a volatile period for bond and equity markets
Adrian Lowcock, head of personal investing, Willis Owen
Pick: Schroder Recovery The value team at Schroders takes a deep value approach to investing, which means that to find the best opportunities they have to look at companies that are being shunned by the wider market.
The team has a very strong value mindset and is committed to the approach, even though it has been a tough period for the fund.
Nick Kirrage and Kevin Murphy have a strong investment philosophy and look to identify companies that are trading at significant discounts to their perceived fair value.
The process looks at a number of valuation screens; price relative to cyclically-adjusted earnings is a key screen, but they also look at other metrics, including price-to-tangible assets.
This reduces the universe to a manageable number of companies, in which the managers undertake more detailed research to eliminate any false positives.
The managers are not constrained by the FTSE All Share when constructing the relatively focused portfolio.
The value focus, combined with the managers' long-term outlook, can result in performance more volatile than the benchmark.
Juliet Schooling Latter, research director, Chelsea Financial Services
Pick: JOHCM UK Dynamic
Manager Alex Savvides is not value for value's sake – he only invests if there is a genuine turnaround situation and, as a consequence, has managed to outperform in a market that has been skewed towards growth strategies almost throughout his entire decade-long tenure.
He has strict investment disciplines: each holding in the portfolio must pay a dividend (so unusually for a fund focusing on capital growth, it has a natural yield – currently 3.4%), and the companies will be well established and in structurally sound markets.
Alex can invest in companies of any size and he will actively vary the fund's bias towards any particular market segment over time.
The portfolio is likely to be concentrated, as he will invest with real conviction, so typically holds between 35 and 50 different firms.
The fund does have a performance fee, but its performance after fees has been excellent, so in my opinion it is a fund worth paying a little extra for.
Tom Becket, CIO, Psigma Investment Management
Pick: River & Mercantile Global Recovery
Judging by the latest global fund manager positioning data, there remains a structural bias among investors to invest in US equities, defensive equities and perceived quality companies.
On the other side of the equation, investors hate the UK, are avoiding anything with economic cyclicality, are still sceptical about Japan and remain pessimistic on the relative prospects for emerging market equities.
If Sir John Templeton was onto something when he said "to achieve better performance than the crowd you must do something different to the crowd", then investors might be wise to do the opposite of the consensus.
Just about the purest method of achieving this contrarian aim is to buy the River & Mercantile Global Recovery fund, a strategy we have backed in varying degrees over the last 11 years.
The manager, Hugh Sergeant, is a rarity in that he is a value manager who still has a job, which is justified by his excellent long-term track record in this recently troubled sector.
The fund has a broad spread of unloved global equities and does not just buy "value for value's sake", but rather has a successful and repeatable process that we admire, even after a couple of difficult years.
Amanda Sillars, fund manager, independent funds, Jupiter Asset Management
Pick: Jupiter UK Special Situations
We would worry if all underlying funds within the Jupiter Merlin portfolios were ahead of benchmark at the same time. Instead, we aim to invest in the most talented managers with varying styles, in the right proportions, thereby inevitably including contrarian managers.
A prime example held across the Jupiter Merlin portfolios is Ben Whitmore and Dermot Murphy's Jupiter UK Special Situations fund.
They use a disciplined 'Graham & Dodd' valuation screen that flags lowly valued companies, combined with a 'Greenblatt' screen to highlight companies with the best combination of value and quality.
Evidence shows that, over time, a portfolio of lowly valued securities has an above average chance of beating the market.
Contrarian for today's investors but invaluable portfolio constituents when market leadership changes, be the cause a change in sentiment towards Brexit, sterling, or government bond yields.
September has shown that change in market leadership can be swift and unexpected: incorporating contrarian funds such as these contributes to continued performance for our clients.
Ben Yearsley, chair of investment committee at Shore Financial Planning
Pick: Schroder Global Recovery
While value has been out favour for a number of years now, I feel it is important to have some balance in client portfolios; I often pair growth and value picks both regionally and on a global basis.
The global value team, headed by Nick Kirrage and Kevin Murphy, oversee this fund as well as various other recovery and equity income funds. The funds all share a common philosophy and approach.
Every company they look at gets a fair value attached to it, regardless of whether they own it, as well as a price at which they would buy.
Losing money in absolute terms is something they want to avoid and that ties in with risk; riskier companies will be smaller positions in the portfolio.
Value has clearly been a relatively painful place to have been invested over last few years.
However, as I have paired this with a growth fund, and as long as both managers stick to their respective styles, then at a portfolio level I can live with underperformance from one side.
Ultimately, I want the best in each area, and I think in the Schroders value team I have the best in value investing.
Investment Week asks five fund selectors for the most contrarian fund picks they are using in their portfolios, amid a volatile period for bond and equity markets
Investment Week asks five fund selectors for the most contrarian fund picks they are using in their portfolios, amid a volatile period for bond and equity markets. Partner Insight: Alternative assets:...
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