U.S. equity, technology and environmental funds topped the charts this year, but where is the smart money going in 2021?
After the strength of the S&P 500’s rally, powered by big tech, many investors are looking further field for returns over the coming 12 months, trying to identify areas still playing catch up.
Asian consumer spending, deeper government commitments to renewable energy and a recovery in value stocks, following the coronavirus vaccine breakthroughs, are all being tipped as potential winners in 2021.These are the funds on seven analysts’ Christmas wishlists.
Matthews Asia-ex Japan Dividend
Asian economies have bounced back the quickest after the countries emerged first from the lockdowns during the coronavirus pandemic. This was reflected in the strong gains seen across regional equity markets this year. Punter Southall Wealth has been a long-term bull on the growth of Asian domestic consumption and bought the Matthews Asia-ex Japan Dividend fund earlier this year.
The wealth manager’s senior investment analyst Martin Ward said the fund’s dividend focus leads it to favour high quality cash generative companies, including tech giants Tencent and Taiwan Semiconductor Manufacturing.
Ward said the fund has a yield of near 2% and since launch in 2015 “has had an attractive return profile, with an upside capture of 91.81%, downside capture of 67.98%”.
This is reflected in its 44% gain this year, more than double its sector average. It is up 163% over five years versus the peer group’s 101% rise.
Ecofin Global Utilities and Infrastructure
As its name suggests, this investment trust invests in a range of utilities and infrastructure stocks worldwide, with holdings including gas and electric power generators, renewable energy businesses and water companies.
It has performed well through 2020, with its net asset value rising 12.1% compared to the MSCI World index’s 10.9% rise in the first 11 months of the year.
James Carthew, director at Marten & Co and author at QuotedData, said the trust, run by Jean-Hugues de Lamaze, is benefiting from the tailwind of surging investor interest in environmental technologies.
“The manager expects and has positioned the portfolio for a multi-decade upswing in infrastructure development, reflecting the rapid development of renewables and the global mission to decarbonise and modernise,” Carthew said.
He said performance should also receive a kicker from listed infrastructure valuations increasing to “close the current valuation gap with unlisted infrastructure assets”.
Bill Ackman’s London London-listed investment company, Pershing Square, was promoted to the blue chip FTSE 100 earlier this month after a string of successful bets powered it to gains of 62% this year.
A series of shorts on the market in February yielded a quick $2.6 billion gain in March, which Ackman compounded by piling into the recovery early.
It marked a return to form for the hedge fund veteran after a few difficult years of performance. Quilter fund research boss Nick Wood pointed out that Pershing Square also holds Ackman’s special purpose acquisition company (SPAC or so-called “blank cheque company”). This raised $4 billion earlier this year to buy private companies and is another potential driver of returns.
“A successful acquisition may have a very positive impact on Pershing Square. But buyer beware, this is a more volatile investment given its fund structure and the small number of holdings,” he said.
This is another investment trust, but one taking a very different approach. Personal Assets holds around half of its portfolio in global blue chip equities, with the other half in more defensive assets including inflation-linked bonds, sovereign debt, gold and cash.
Managed by Sebastian Lyons of Troy Asset Management, the trust is a steady investment primarily designed to protect capital over the long-term. It proved its worth this year, up 6.5% year to date, and only falling by less than 9% during the March sell-off.
Ryan Hughes, head of active portfolios at AJ Bell, said: “The defensive nature of the approach sits well as we go into the new year for those investors who are cautious that markets remain at or close to all-time highs and also fear the return of inflation.”
Man GLG Undervalued Assets
A rally in old world names like banks and oil companies last month had commentators hailing the resurgence of value investing after years in the doldrums. While loath to call a tipping point, Adrian Lowcock, head of personal investing, Willis Owen, said the Man GLG Undervalued Assets fund will make a complementary addition to existing growth holdings.
The fund had a difficult year as tech stocks boomed, but Lowcock said manager Henry Dixon “remained disciplined and followed his well-established process”.
“He should be well-placed to benefit from a recovery and not just a value rally,” Lowcock added.
ASI Global Smaller Companies
Smaller companies have been left trailing in the wake of their large cap counterparts this year as investors clustered in the tech behemoths. This left many attractive small caps sitting on comparatively attractive valuations, said Chelsea Financial Services managing director Darius McDermott.
“Larger companies have been outperforming of late, helped in no small amount by the big tech names. Smaller companies, which have paid the price of investor uncertainty in 2020, have relatively attractive valuations and should do well going into a recovery.”
He highlights the ASI Global Smaller Companies fund as a standout performer. Managed by veteran investor Harry Nimmo, it is up 138% over five years versus a sector average gain of 89% and it has delivered double the peer group return over 12 months.
Morgan Stanley Asia Opportunity
Rising Asian consumption as the region’s middle class swells in size remains an attractive long-term investment theme. The likes of Alibaba
The fund, managed by Kristian Heugh and Krace Zhou, has had a cracking year, surging by 50%, compared to a sector average return of 19%. Over three years it is up 85% versus 19%. Around 60% of the portfolio is invested in Chinese equities, but it also has exposure to India, Taiwan and South Korea.
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