Fixed Income: Baring Emerging Market Debt Blended Total Return
Given the low level of yields available in global fixed income markets, emerging market debt is one of the few areas that offers an attractive level of income. The macro backdrop is positive, as emerging economies exhibit low levels of debt relative to GDP, high levels of economic growth and their currencies are near historical lows on a purchasing power parity basis.
We believe the Baring Emerging Market Debt Blended Total Return is a compelling strategy to gain access to this market.
Investors in this fund have access to the best ideas from each of the three specialist teams -hard currency sovereign debt, local currency sovereign debt and hard currency corporate debt- in addition to the portfolio managers' top-down asset allocation across these sub-sectors. Investors therefore benefit from the team's view of the best opportunity set offered by emerging market debt at any point in time.
We like the high conviction and long-term investment approach employed by the managers and while this will tend to lead to a more volatile profile, we believe investors should get compensated with superior returns over the long term.
Global Equities: Artemis Global Select
There is a clear distinction between this fund and many of its peers and as such, it is by no means a typical global equity strategy.
The investment process, which is aimed at uncovering quality businesses that are supported by established growing thematic trends, typically results in a portfolio of companies that are less exposed to the vagaries of the prevailing economic climate.
This is a dynamic process, with new themes continually being explored, tested and occasionally included in the portfolio, whilst those considered to have played out being reduced and dropped. The managers also seek to moderate downside risks. Broadly speaking we would expect this fund to lag in aggressively rising markets, especially when the market is being led higher by more cyclical industries or when it appears to have overextended itself, though the strategy should hold up better in market selloffs.
Given the uncertain outlook, particularly with the Coronavirus’ many ramifications still lingering, we like the fact that the fund’s managers have sought to keep a balance in the portfolio of stocks that are benefiting from the reflation/re-opening trade, as well as companies they believe are structural long term growth winners, trading on reasonable valuations. We believe that this balanced approach to global equity investing should serve long-term investors well through such uncertain periods.
Responsible investment: Storebrand Global ESG Plus Responsible A-rated The Storebrand Global ESG Plus fund presents a unique combination of straightforward exposure to the equity market with an extensive ESG research overlay. The fund’s objective is to replicate the risk and return profile of a developed world equity index, while at the same time to reduce the fund's carbon footprint and enhance other ESG criteria within the fund. Storebrand Asset Management has a history of responsible investing. In this fund, their expertise is used to create a comprehensive screen that excludes a significant number of companies in the global universe that have exposure to various controversial activities, specifically fossil fuel production. Furthermore, approximately 10% of the portfolio is dedicated to the companies outside of an index, which actively promote environmental solutions. Despite a higher active share compared to global passive funds, the fund has successfully replicated the risk and return profile of the MSCI World An investor in this fund can expect a similar risk and return profile to the MSCI World, but a reduction in the fund's carbon footprint and a positive ESG tilt. It should be noted that the fund will have an underweight exposure to fossil fuel stocks and will therefore underperform the wider market if these types of stocks rally as was experienced in the early part of 2021.
UK Equities: SVM UK OpportunitiesA-ratedHistorically, this has not been a fund for the feint-hearted as it does tend to fall more than its MSCI United Kingdom IMI benchmark during more troubled times. However, it springs back to life with gusto when markets recover and over the longer term the strategy has delivered an impressive set of returns.Lead manager, Neil Veitch, has run the fund since January 2006 and over the years has made some subtle changes to the approach in an attempt to moderate volatility. This has included an increased level of diversification through higher allocations to larger companies, as well as the introduction of a short component to the portfolio. Nonetheless, we would highlight that the latter element is not a significant feature and that the manager remains loyal to the ethos of producing a high conviction, special situations type fund.Veitch has a number of characteristics that we like. In particular, his recognition that in order to generate differentiated performance, his investment approach must be different and, when necessary, he must be prepared to stray into less trodden areas of the market.With a number of the well-reported headwinds for the UK equity market abating, or indeed switching to tailwinds, investors might like to access a fund that has somewhat ‘flown under the radar’ but is one that is managed in a truly unconstrained manner.
Absolute Returns: JPM Global Macro OpportunitiesA-rated Although most global macro funds contain complex amalgams of investments spanning all the major asset classes, the JPM Global Macro Opportunities fund’s exposures have recently been concentrated in equity markets and based on secular and cyclical themes. The net equity exposure in the fund has ranged between (3)% net short and +79% net long and its dynamic management has enabled the team to protect capital in periods of significant market stress. For example, the fund was profitable in Q1 2020. However, the success rate in such adjustments to net market exposure can be a significant factor in the fund’s performance and so returns can at times be lumpy. Nevertheless, the fund has delivered an impressive annualised return of over 7% since inception in February 2013, which is much better than most other global macro funds. With valuations very stretched in major equity and bond markets, the second half of 2021 is likely to see bouts of volatility in financial markets. Given its track record of successful and dynamic management of net market exposure, the fund is well-equipped to withstand such episodes of volatility, while also continuing to benefit from longer-term secular and cyclical themes. Since launch, the fund’s returns have exhibited very low correlation with stock market returns and the fund may therefore represent more effective diversification within a portfolio than government bonds at a time when yields are so low.
Square Mile's research team select their top fund picks for the second half of the year