Jonathan Miller: Happy New Year and welcome back to the Morningstar Manager Check-up. The Janus Henderson UK Absolute Return fund is managed by Ben Wallace and Luke Newman, who’ve worked together for over a decade. They were running this strategy through the depths of the global financial crisis, making positive returns and since then, have continued on that trajectory every calendar year.
Their approach is to go long stocks they think will deliver earnings growth in excess of market expectations, while also going short stocks they believe will undershoot expectations. They execute this by building core positions on the one side and tactical ones on the other. The core is one third of their exposure and the tactical book makes up the rest.
What they look for in this part are factors expected to drive share prices over the next three months. The fund’s volatility has been low and although the performance fee structure means fees are high, our conviction on the managers and their approach means the fund earns a Morningstar Analyst Rating of Bronze.
Legg Mason Brandywine Global Fixed Income has Steve Smith and David Hoffman's decades of experience in running this strategy. In 2016, they hired Anujeet Sareen, who became a co-manager, along with Jack McIntyre last year. So we see succession planning in place for what is ultimately an intrepid strategy. Their universe is sovereign and quasi-sovereign bonds that are rated investment grade, but there’s disregard for indices.
Instead, the focus is on high real yields and undervalued currencies in countries with strong or improving fundamentals. That's led to significant emerging markets exposure over the years and little exposure to low, or even, negative-yielding developed-markets. Adjusting the sensitivity to interest rate movements is also in their armoury. You do see a fair amount of volatility here, but the disciplined process applied by an experienced and growing team supports the fund's Bronze rating.
Artemis UK Special Situations has been managed by Derek Stuart since inception in early 2000, with Andy Gray becoming co-manager in 2013. The duo seek out-of-favour companies undergoing internal change whose potential is unrecognised by the market. The focus on self-help and turnaround situations leads the fund to have a value bias relative to the index and peers.
Since launch, outperformance is high, but a large proportion of these returns came in the first few years when the fund had a larger small-cap allocation. Returns over more-recent time periods have been less impressive, but our analysis shows that taking into account the value bias relative to the broader category, positive stock selection has been demonstrated over this period.
While Stuart's investment style has often been out of favour in the recent past, the evidence of positive stock selection within a value universe leads us to believe the strategy continues to have the potential to deliver for investors over the long term. The fund therefore retains a Morningstar Analyst Rating of Bronze.
