Stock markets started 2013 strongly, but there's certainly still value out there and they could therefore have further to go. Many investors have understandably been in defensive mode over the past few years, but if you believe the tide has turned it could be a good time to look at more aggressive funds, which are more likely to outperform in a rising market. I have picked five of my favourites for sophisticated investors who can afford to and are happy to take more risk in search of higher returns. Please remember the value of any investments can fall as well as rise and you could get back less than you invest.
There are tentative signs that the Chinese economy is stabilising and growth is returning in the US. If the global economic outlook improves in 2013, demand for oil is likely to increase.
One way investors could benefit is through the Junior Oils Trust. Manager Angelos Damaskos invests in oil companies which have existing production and strong exploration and development programmes. Many are already cash generative and have significant reserves.
Angelos Damaskos believes smaller oil company shares have been oversold in recent years. In his view several factors could help spur a rally in the shares; the third round of quantitative easing in the US, Chinese infrastructure spending, and continued instability in North Africa and the Middle East.
The Indian government will roll out changes to the subsidy system for the poor this year; giving cash directly to those who most need it and are also most likely to spend it. Avinash Vazirani, who manages the Jupiter India Fund, believes Indian companies focused on the consumer are likely to be key beneficiaries and his fund reflects this view, with consumer stocks accounting for more than 30% of the portfolio.
Inflation has now reached a three-year low and Avinash Vazirani believes the central bank will cut its key repurchase interest rate. This could herald a major boost to market sentiment as it might signal a start of the monetary easing cycle. The fund is 28.5% invested in financials to try and benefit from this.
One of the distinguishing features of this fund is its bias towards higher risk small and medium-sized companies. These have proven a valuable addition to the portfolio and a driver of performance since launch, although there are no guarantees that it will continue to aid its performance.
This fund invests at the grassroots – in companies with a market value of less than £100m. Manager Giles Hargreave will also buy shares in companies listing on the market for the first time.
He takes steps to try to minimise risk in this very high risk area. He holds a high cash element, and gives particular attention to the possible downside of each company he buys. He only buys with a long-term horizon, he doesn't look to trade for a quick profit (which also helps reduce trading costs). The fund is highly diversified, with currently over 220 holdings, many are quite small as Giles Hargreaves likes to take small initial positions and build them up over time as his confidence grows.
This approach has been successful since launch in 2004, largely driven by consistently excellent stock selection. This fund is run by an experienced, talented manager operating in an area of the market where there are opportunities to add significant value.
Some sectors can perform well, regardless of where we are in the economic cycle. Agriculture is one such area. The rapidly growing global population, urbanisation of people and rising wealth in the most populous emerging markets is driving demand for meat, processed foods and packaged foods. This has enormous consequences as meat and processed foods are resource-intensive to produce.
Such long-term trends create challenges but also opportunities and Henry Boucher, manager of the Sarasin AgriSar Fund, aims to benefit. The fund doesn't invest directly in commodities, instead gaining exposure through food producers or supermarket chains. This largely avoids the short-term volatility often seen in commodity prices.
He aims to identify investment opportunities across the agricultural spectrum from those that own land to those providing feed and fertiliser, machinery, suppliers to transport and storage businesses. Henry Boucher also looks at other industries affected by changing diets, including food processors and pharmaceutical companies.
2012 was not a good year for gold mining shares. They suffered from a combination of negative sentiment and company-specific issues. Managers of the Smith & Williamson Global Gold & Resources Fund, Ani Markova and Robert Lyon, anticipated a challenging 2012 and were able to use the fund's flexible approach to invest 10% in gold bullion (the maximum allowed) and increased the holdings of larger (and therefore more stable) companies.
There has been a valuation gap growing between the price of gold bullion and the shares of gold mining companies. Historically gold shares followed the gold price, but they have lagged in recent years. We believe this fund could be well placed to capitalise if this anomaly corrects itself, although it is important to remember equities are a higher risk investment proposition than buying physical gold.
The managers are positive on the outlook for both gold bullion and gold shares in 2013. They believe a combination of increasing demand from governments, particularly in higher risk emerging markets where governments are trying to diversify reserves away from US dollars, and a restricted supply will drive the gold price up.
The scope to increase supply to meet demand is limited. Few central banks are sellers and it takes considerable time and investment to develop new gold mines. They believe this will benefit well-managed companies with proven reserves keeping their operating costs under control. They also suggest smaller companies look attractive again following recent falls in share prices.
It is important to choose investments based on your own investment objectives and your attitude to risk.
If you're considering an investment in any of the mentioned funds please ensure you read the individual Key Investor Information Documents which contain details of the risks involved.
The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.