This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Marcus Brookes, manager of the Bronze-rated Cazenove Multi-Manager Diversity fund picks four funds for investors’ ISA allowance.
UK Equities
Funds always tend to be categorised nowadays with labels such as Growth, Value, Quality and Recovery, but we think the perfect way to describe Majedie UK Income managed by Chris Reid is as an ‘Improvement Fund’. In the manager’s own words: “This is a conviction based active stock-picking fund that through detailed analysis and experience is looking to find companies that have settled on a course of massive improvement and, in doing so, leapfrog their competitors.”
“Philosophy aside, from our perspective, it is the depth and granular detail of analysis that underpins the appeal of this fund. However, when you set about running a fund in a fairly distinctive way compared to your direct competitors – as Chris Reid has – you take on board the risk/opportunity of potentially generating outsized relative returns.
European Equities
One of the funds we like in European equities is Morningstar analyst Neutral-rated Invesco Perpetual European Equity, managed by Jeffrey Taylor and Stephanie Butcher. The fund managers are value-focused; unafraid of making contrarian bets and rotating in and out of favoured areas as the cycle unfolds.
The fund has seen past the last few years headlines of woe and continued to pick up distressed assets when at their most hated prices. As sentiment has moderated to something more balanced than outright panic, those hated assets have been rerated. The progressive nature of this fund means that profits are being reinvested into new areas of value continuously. Meanwhile, Taylor’s proven stock picking expertise should also protect the fund from value traps and duds.
The portfolio is concentrated in around 50 stocks and its value bias means that it may disappoint if this style is weak, but we feel it is set fair for a while yet particularly if Europe continues to recover.
Japanese Equities
Japan has been a poor place for investing since 1989 and the lost decades that followed, leaving the stock market looking good value. The Gold-rated GLG Japan CoreAlpha is a fund we like to benefit from this. It is a Japanese equity fund managed by Stephen Harker that focuses on large caps and on value. The fund is contrarian by nature and unafraid to express its views with heavy sector over- and underweights. We currently like the fund as we think Japan will continue on its path of economic reforms and valuations there still look to be discounted in comparison with other major markets.
Fixed Income
We are not keen on fixed income and haven’t been for some time now. We think bonds on both the government and corporate fronts look expensive and as a result all of our multimanager funds are extremely underweight. However, Silver-rated M&G Optimal Income managed by Richard Woolnough remains our top pick. It currently has a strong bias towards investment grade corporate bonds, and they account for around half its portfolio, but it also holds government bonds, high yield credit and even some equities.
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