Lift your fortunes with funds aiming for a big 2021 rebound

On the rebound?: There seems to be a little bit of blue sky on the horizon, despite the impact of the pandemic on the economy

On the rebound?: There seems to be a little bit of blue sky on the horizon, despite the impact of the pandemic on the economy

On the rebound?: There seems to be a little bit of blue sky on the horizon, despite the impact of the pandemic on the economy

It has been a difficult year for most investors, especially those with a majority of their money in UK shares. The FTSE 100 Index, a barometer of the fortunes of the country’s largest listed companies, is still down 16 per cent since the start of the year while the wider FTSE All-Share Index has fallen some 15 per cent in value. 

Yet, there seems to be a little bit of blue sky on the horizon, despite the calamitous impact of the pandemic on the economy outlined by Chancellor Rishi Sunak last week. 

With vaccines set to be rolled out from early next month, and a conclusion to the Brexit negotiations drawing ever closer, many experts believe the UK stock market is poised for growth as the economy bounces back. 

In last week’s Wealth section, some investment professionals thought the FTSE100 could hit 8,500 by the end of next year as international investors return to the market. Others believe it could go as high as 9,400 – it closed on Friday at 6,368. 

If they are right, it will be music to the ears of many who are depending upon their investments to see them through retirement and beyond to help their families. This is because it will lift the fortunes of some investment funds and trusts that were badly hit by the sharp stock market falls of earlier this year. 

A FUND DESPERATE TO MAKE UP LOST GROUND

The £2.1billion investment fund Fidelity Special Situations is one of the best known in the country, primarily because of the outstanding returns achieved by former manager Anthony Bolton during his 28- year reign that ended in late 2007. 

Today, the fund is managed by Alex Wright, assisted by Jonathan Winton. Its share price fell by 40 per cent in March as lockdown was enforced – a result of owning domestically focused UK stocks whose shares plunged in value. 

Although the fund’s share price has since recovered, it has still recorded year-to-date losses of 16 per cent and underperformed the FTSE All-Share Index. Losses over the past year and three years are 13 and 8 per cent respectively. 

But Wright believes there is the potential for a strong market ‘rebound’ in the coming months, triggered by three ‘catalysts’ – the roll-out of coronavirus vaccines, an end to all the Brexit shenanigans, and renewed interest in the UK stock market from international investors. 

Wright reckons there is some ‘outstanding value’ to be found in the UK stock market. He illustrates this by comparing the performance this year of some companies that the fund holds against the track record of their closest counterparts in the United States. 

For example, he cites UK housebuilder Vistry (previously known as Bovis Homes) versus leading US homes company Lennar; electrical and telecoms retailer Dixons Carphone against American electronics giant Best Buy; and car dealer Inchcape versus US car retailer CarMax. 

In all three cases, the shares of the American companies have risen in value while those in the UK companies fell – in Vistry’s case by 35 per cent. Wright believes that at some stage these share price differentials will reduce, hopefully through a rerating in the shares of the UK companies – although Sunak’s pessimistic economic assessment did little to suggest any rerating might just around the corner. 

The fund’s biggest sector exposure (14 per cent) is currently in life insurance with key holdings in Legal & General, Phoenix, Just Group and Aviva. Wright believes the companies are financially robust and should be able to grow their earnings against a difficult economic backdrop. Last week, Aviva cut its dividend by a third 

He argues the ‘quality’ of the Special Situations portfolio is higher than that of the UK stock market as a whole and says there is ‘an awful lot more upside to come’. The fund’s annual charge is a touch over 0.9 per cent and the stock market identification code is B88V3X4. 

The dividend is minimal, equivalent to a tad over one per cent a year, so not attractive to income investors.

TRUST WELL PLACED TO BOUNCE BACK

Investors in stock market listed investment trust Artemis Alpha have been put through the mill in recent years. A big foray into UK unquoted companies, accounting at one stage for a quarter of its assets, proved somewhat disastrous – and led to the appointment of Kartik Kumar in 2018 to conduct a review of holdings – and overhaul them. 

Kumar’s view was that Artemis is an investment house that specialises in seeking profits from listed companies and the Alpha trust should reflect this. 

The result is a portfolio now more skewed to large (FTSE100) UK companies. While most of the unquoted stocks have been disposed of – five remain, three of which will be jettisoned in the months. The two other unquoted positions – in aerospace specialist Reaction Engines and investment bank N+1 – will be held for the time being with Kumar describing Reaction as an ‘exciting company’. 

For all of Kumar’s careful portfolio reconstruction work, it didn’t protect shareholders against the sharp market falls of March. Yet, the trust has bounced back stronger than Fidelity Special Situations. 

Since the start of the year, its share price has increased by more than 8 per cent. Over the past year, it has generated a return for investors of 18 per cent. 

Unlike many experts, Kumar is not prepared to forecast the level the UK stock market could reach next year. But he says it ‘looks attractive’, helped by continued low interest rates. He believes the way to make money is to invest in companies that will survive the economy’s contraction. 

That means industry leaders such as banking group Lloyds and retailer Frasers Group, housebuilders (the trust owns shares in Bellway, Redrow and Springfield Properties) and companies that have benefited from the economy’s rapid ‘digitalisation’. For example, he believes home food delivery companies Delivery Hero and Just Eat Takeaway will continue to thrive – the two companies are among the trust’s top 10 holdings.

‘Home food delivery is the future,’ he says. ‘Just look at Chinese home delivery firm Meituan. It has a market value some 50 per cent bigger than AstraZeneca, one of the world’s most successful pharmaceutical companies.’ 

The £150million trust is invested in 32 stocks. Its dividend is unattractive at 1.3 per cent, the total annual charges are 0.9 per cent and the stock market identification code is 0435594. 

INVESTMENT THAT MAKES AN IMPACT 

Impact investing is in vogue at the moment as an increasing number of investors look to back companies that ‘do more good than harm’ – whether environmentally or from a societal point of view. 

It’s the reason why a new investment trust is being launched with an impact investing focus. It is called Schroder BSC Social Impact Trust and it hopes to raise an initial £100million from investors. 

Shares in the trust will be able to be bought through leading fund platforms AJ Bell, Hargreaves Lansdown and Interactive Investor – with the minimum subscription set at £1,000. Once up and running, shareholders will be able to watch – via a website – where in the country their money is being invested and what projects are being supported near where they live. 

The stock market listed fund will invest in projects generating a ‘positive’ social impact – as well as an attractive return to shareholders. They will include affordable housing for low-income families, the provision of finance to charities through charity bonds, and so-called ‘social outcomes contracts’. These aim to deliver a range of social services centred on key issues such as homelessness and youth unemployment, with the emphasis on achieving positive results. 

The trust’s portfolio will be managed by Big Society Capital, a business that has been investing in social impact assets for eight years, with input from Schroders. 

Jeremy Rogers, chief investment officer of Big Society Capital, says the intention is to provide shareholders with a ‘good risk-adjusted return’ that will bear no correlation to other financial assets such as shares, bonds and gold. In other words, an asset diversifier.

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