Andy Parsons identifies three funds which he believes could thrive in 2018.
A trio of fund tips for 2018
- 2018 likely to be another geo-politically charged year
- Three funds tipped for 2018 offer specific exposure to preferred regions of Japan, India and Europe
- All funds tipped for success in 2017 all achieved positive returns
After another tumultuous geo-politically charged year, 2018 is likely to be much of the same, where answers are sought to some of the most politically challenging questions and experts look to central banks for guidance and indications as to the health of the global framework. Brexit will remain at the forefront of everything UK related, albeit closely followed by the Bank of England’s interest rates decisions.
Over in the US, the signing in of sweeping tax reforms will undoubtedly provide a boost to markets, the Fed will maintain its upward trajectory with interest rates, whilst the biggest media frenzy is more likely to be centred around the US mid-term elections. Elsewhere in the world, much of the focus in Europe will remain on Germany and Italy as they look to sort out their respective political leaderships.
I’m therefore tipping three funds capable of potentially weathering and benefiting from any market turbulence that may lie ahead in 2018, with one of those tips appearing for the second year in succession.
Legg Mason Japan Equity
Japan remains one of our preferred regions and this particular fund seeks to benefit from the economic, demographic and structural changes that the country is continuing to face into. The portfolio will vary between 25-60 stocks, with the lower the number clearly indicating the strength and conviction the manager has in those companies.
Around 80% of the portfolio will be seen as core long term holdings, whilst the remaining 20% will be used for more short to medium tactical investments. The fund has the flexibility to invest across the entire market cap spectrum albeit generally focuses on those between £330m and £1bln. Investors should be prepared to accept a higher degree of volatility with this fund, but for those seeking the potential for strong growth, this fund may well be suitable for 2018.
A number of factors are converging that have been giving India prominence on the global economic stage. This includes high growth rates in the industrial and service sectors, significant population growth, strong domestic demand, as well as a Government that is pro-business. This mix, in our eyes, subsequently makes the country hard to be ignored as a long-term investment opportunity.
Managed by Avinash Vazirani, the investment approach for this fund is to identify companies based on the strengths of their fundamentals. He principally uses a process referred to as a GARP measure (Growth at a Reasonable Price). However, if an opportunity exists, he will be prepared to pay a premium if the earnings growth compensates for this. Investors should recognise that investments will be made across the capitalization scale.
Man GLG Continental European Growth
This particular fund was amongst the funds tipped for success in 2017 and, as noted in the evaluation below, it’s tried and tested formula has proven to be invaluable over the last 12 months. More importantly, this momentum looks set to continue.
This is a fund for investors looking for a core portfolio of European equities, who want to focus away from the UK. Fund manager Rory Powe looks for strong European growth companies that fall in to two camps, which he refers to as ‘established leaders’ and ‘emerging winners’. He takes a bottom up approach to selecting companies for his fund, which means he is looking for businesses that have recurring revenues underpinned by pricing power, high gross margins, robust cash flow, a strong balance sheet and cash returns.
How did the three funds we tipped for 2017 perform?
The three funds recommended for 2017 all achieved positive returns, although we should look at them in the context of their sector and environment.
The LF Miton US Opportunities fund has achieved growth of 10.78% in 2017, marginally up when compared to its sector average which has returned 10.53%, with the fund ranked 55th out of 127 within its peer group. Economic data has continued to generally be supportive alongside a backdrop of interest rate rises; whilst for the majority, much of the focus has been about waiting to see whether any of the President Trump pledges could be delivered.
The Polar Capital Global Insurance fund has returned 7.12% in 2017, compared with the sector (Specialist) in which this fund resides are meaningless given the vast breadth and diversity found within it. For those investors who have exposed their portfolio to this fund, 2017 has been a testing year for the non-life insurance industry, given global catastrophes such as the weather.
The third and final fund tipped for 2017 was the Man GLG Continental European Growth fund. The tried and tested formula that has proven successful in previous years has once again proved to be invaluable as the fund has returned 18.74% in 2017 compared to its sector average of 17.29%. Very much in tune with a key investment discipline that Rory follows, I have once again stuck with this fund as one of my tips for 2018 – an established leader!
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