Five underperforming favourites you shouldn’t sell A number of highly rated funds have lagged behind their peers in the recent rally, but experts warn that investors would be foolish to sell out of them. As markets have moved in to a more risk-on phase, a number of funds that did very well in the years when their competitors struggled have found it difficult to stay ahead now the tables have been turned. Experts say it is because there has been stronger interest in economically sensitive stocks over top-quality defensive companies. Here are five highly rated funds that are currently underperforming but that the experts say still have the credentials to deliver over the longer term. Liontrust Special Situations The five crown-rated Liontrust Special Situations fund, which is headed up by the FE Alpha Manager duo of Anthony Cross and Julian Fosh, is a bottom-quartile performer in the IMA UK All Companies sector over the last year with returns of 18.49 per cent. However, given the fact it had been a top-quartile performer in each of the last five discrete calendar years, Charles Stanley Direct’s Rob Morgan say investors in the fund should stay where they are as he expects the glory days to return before long Jupiter European FE Alpha Manager Alexander Darwall’s five crown-rated Jupiter European fund is arguably the best performing portfolio for capital preservation and growth in the IMA Europe ex UK sector over the long-term. However, it has only registered bottom-quartile returns over the past 12 months. Morgan is not concerned by this. It’s a similar story to the Liontrust fund, he said. Alexander Darwall will hold companies for years if not decades and while he may top up or trim some of his positions, he won’t have much going on in terms of portfolio rotation. For instance, he won’t just jump into financials. He has lagged behind this year as he hasn’t been invested in some of the areas that have driven the market. There hasn’t been the demand for his style, it isn’t because he is having a particularly bad patch, he added. Darwall’s £2.2bn fund has beaten the sector and its FTSE World Europe ex UK benchmark over eight of the last 10 discrete calendar years. In six of those years the fund was a top-quartile performer. Jupiter European has returned around 100 percentage points more than its benchmark over 10 years and is the fourth best-performing fund in the sector over that time. The OCF is 1.79 per cent and it requires a minimum investment of £500 Troy Trojan Both Morgan and Ben Willis, head of research at Whitechurch, say the currently underperforming Trojan fund is still a good long-term holding. Morgan himself has money in the fund and isn’t selling, even though it has lost 1.39 per cent over one year. He says manager Sebastian Lyon is someone he wants on his side as he will be able to increase the value of his capital in the long-run.The £2.4bn Trojan is the second-best performing portfolio in the IMA Flexible Investment sector since its launch in May 2001. However, it has struggled recently due to Lyons defensive stance during the rally Nevertheless, Willis says investors in the fund should not change their allocation. Ultimately, Lyon sets his stall out and says he is going to try and preserve capital but deliver returns over the long-run, Willis explained Jupiter Merlin Income The Jupiter Merlin funds, run by John Chatfeild-Roberts, Algy Smith-Maxwell and Peter Lawery (all of whom are FE Alpha Managers) are commonly regarded as the best multi-manager portfolios in the IMA universe. However, while their long-term returns have been high, they have lagged behind their peers recently. The £4.7m Jupiter Merlin Income fund is a third-quartile performer in the IMA Mixed Investment 20%-60% Shares sector over one year and is a bottom-quartile performer over six and three months. Smith-Maxwell recently told FE Trustnet the recent underperformance was due to an over-exposure to emerging market equities and debt and the surprising resilience of the dollar. However, long-term investors in the fund have little to complain about, given it has been the second-best performer in the sector over 10 years and has delivered top-quartile returns over five years. Jupiter Merlin Income has a yield of 3.2 per cent and our data shows it has grown its net distribution over the past few years. It requires a minimum investment of £500, though investors who own the fund are hit with a hefty 2.36 per cent OCF. M&G Recovery Morgan also says that investors would be foolish to sell out of FE Alpha Manager Tom Dobell’s M&G Recovery fund, though he says its underperformance is due to different reasons from the Liontrust and Jupiter funds. The £7bn fund was a third-quartile performer in 2011, and a bottom-quartile performer last year and so far in 2013. Dobell says his fund’s underperformance is due to its weighting to the basic materials, oil and gas, and industrials sectors. In an article earlier this year, Dobell told FE Trustnet that he was working harder than ever to turn his fund’s performance around. Our data shows that M&G Recovery is a top-quartile performer in the IMA UK All Companies sector over 10 years, with returns of 177.77 per cent (alex Paget @ trustnet)
Posted on: Sun, 03 Nov 2013 12:19:39 +0000
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