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  • Five funds to watch in 2021

    Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.

    Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

    five funds to watch in 2021

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Kate Marshall, Senior Investment Analyst

    What a year 2020 was. It saw so many major events that Oxford Dictionaries expanded its word of the year to include several "Words of an Unprecedented Year". Unsurprisingly, many relate to the coronavirus pandemic, with the likes of Covid-19, WFH, lockdown and furlough featuring on the list.

    The year has been filled with new words unlike any other. And while 2020’s most popular words would have been entirely unpredictable 12 months ago, so too was the behaviour of both economies and markets. If anything, 2020 reminded us just how uncertain markets can be, and how making forecasts is fraught with difficulty.

    As always it’s important to focus on the long term when it comes to investing. We believe good companies have the ability to drive good returns, but it won’t always be a smooth ride. Remember to consider your longer-term goals when considering any investment, and that diversification is key, especially when you don’t know what lies around the corner.

    This year we have again picked a mix of funds that could suit a variety of investment goals. Importantly, these should not be considered standalone investments, and only as part of a wider investment portfolio.

    Remember investments should always be made for the long term – we suggest at least five years. This article isn’t personal advice or a recommendation to invest, and remember all investments can fall as well as rise in value – you could get back less than you invest. If you’re not sure an investment is right for you, please seek advice.

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    To follow these funds, tap the ‘add to watchlist’ button below the name of each pick. Then log in to your account to keep track online or with the HL mobile app.

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    Artemis Income

    On the hunt for above-average dividends

    2020 wasn’t a golden year for income investing, especially in the UK. The coronavirus pandemic saw many UK companies cut or even suspend their dividends, and this had an impact on the dividends paid by UK equity income funds.

    While there have been stumbling blocks along the way, not least in 2020, British businesses have a long history of paying generous dividends to shareholders and we think there are reasons to be positive.

    Some companies were strong enough to maintain dividends, while others that previously cut are now looking to reinstate payments. Some will take longer to recover than others though. While dividends in the near term are likely to be lower than we've been accustomed to in recent years, we expect the UK to remain a place for income over the long run.

    In recent years there have been other headwinds, such as Brexit, for the UK to face. It means UK share prices relative to much of the rest of the world have been dampened by negative sentiment. We think the UK market looks undervalued compared with many overseas markets, and this means there could be stored up potential for growth if sentiment improves. There are no guarantees though.

    Overall, income remains a vital investment strategy for many investors. Whether looking for an income in retirement, or to supplement wages, equity income is a common way to try to achieve this. It’s also a useful way to diversify growth-focused funds and, if the income isn’t needed now, it can be reinvested to boost future growth potential.

    Artemis Income has been part of the Wealth Shortlist (formerly the Wealth 50/Wealth 150) for many years. Manager Adrian Frost has one of the longest and most successful records investing in the UK for income, and in recent years he’s been joined by co-managers Nick Shenton and Andy Marsh. They are also experienced investors and we think the three of them work well together, bringing different perspectives to the table.

    Manager Adrian Frost has one of the longest and most successful records investing in the UK for income

    Their main aim is to find companies with sustainable cash flows, which could be used to support dividends paid to shareholders. Importantly these companies should pay above-average dividends the managers think will also grow faster than average.

    The managers have a good long-term track record. If you invested £10,000 in the fund 10 years ago, it would've grown to £13,517 and paid out £5,172 as income. Reinvesting the dividends would've grown the original investment to £20,548*. This doesn’t guarantee what income will be paid in future though, and past performance isn't a guide to future returns.

    This fund takes its charges from capital, which can increase the yield but reduce the potential for capital growth.

    ANNUAL INCOME FROM A £10,000 INVESTMENT MADE 10 YEARS AGO

    Past performance isn't a guide to the future. *Source: Lipper IM to 28/02/2021.

    Annual percentage growth
    29/02/2016 to 28/02/2017 28/02/2017 to 28/02/2018 28/02/2018 to 28/02/2019 28/02/2019 to 29/02/2020 29/02/2020 to 28/02/2021
    Artemis Income 15.4% 6.2% 0.1% 0.5% 6.2%
    IA UK Equity Income 15.5% 4.2% -0.5% -1.3% 3.3%

    Past performance isn't a guide to the future. Source: Lipper IM to 28/02/2021


    INVESTMENTS BY COUNTRY

    Source: Legal & General, correct to 31/10/2020. Percentages may not total 100% due to rounding

    Annual percentage growth
    29/02/2016 to 28/02/2017 28/02/2017 to 28/02/2018 28/02/2018 to 28/02/2019 28/02/2019 to 29/02/2020 29/02/2020 to 28/02/2021
    Legal & General Future World ESG Developed Index N/A N/A N/A N/A 23.6%
    IA Global 31.9% 8.4% 1.9% 7.0% 23.4%

    Past performance isn't a guide to the future. Source: Lipper IM to 28/02/2021. N/A - data for this time period isn’t available.


    Troy Trojan

    Aiming for growth with limited volatility

    While we expect stock markets to grow over the long run, they’ll inevitably experience setbacks too. Fast-tracked Covid-19 vaccines are surely good news, but there is likely to be continued economic uncertainty associated with the virus, meaning periods of market volatility could persist in the short term.

    A total return fund could be a good addition to an investment portfolio in this environment. Total return funds are more conservative than funds that invest fully in company shares. They normally invest in a mix of investments including shares, bonds, commodities and currencies. They could help provide modest growth for a portfolio over the long term, and help shelter money when stock markets fall, but are unlikely to keep up with stock markets when they rise quickly.

    Troy Trojan is a total return fund with a solid long-term track record, and an experienced fund manager in Sebastian Lyon. The fund has performed better than the broader UK stock market, as measured by the FTSE All Share index, since its launch in 2001. It's also done better than its peers in the IA Flexible Investment sector – but can lag both the index and sector during stock market rallies.

    Lyon focuses on the shares of well-established US and UK companies he thinks offer reliable earnings and good growth potential. The rest of the fund invests in UK government bonds, US inflation-linked bonds - which could provide some shelter from rising inflation - gold and cash. The cash and gold could help provide some ballast when economic and stock market conditions are tougher. The fund has exposure to a relatively small number of investments, meaning each one can have a meaningful impact on performance, but it does add risk.

    Rather than trying to shoot the lights out, this fund aims to grow investors' money steadily over the long run, while limiting losses when markets fall. It tries to experience less ups and downs than the broader global stock market or a portfolio that's mainly invested in shares. As a result, it could form the foundation of a broad investment portfolio, bring some stability to a more adventurous portfolio, or provide some long-term growth potential to a more conservative portfolio.

    Rather than trying to shoot the lights out, this fund aims to grow investors' money steadily over the long run, while limiting losses when markets fall.

    INVESTMENTS BY ASSET TYPE

    Source: Troy, correct to 31/10/2020

    Annual percentage growth
    29/02/2016 to 28/02/2017 28/02/2017 to 28/02/2018 28/02/2018 to 28/02/2019 28/02/2019 to 29/02/2020 29/02/2020 to 28/02/2021
    Troy Trojan 11.2% -0.9% 1.0% 8.7% 5.2%
    IA Flexible Investment 21.7% 7.0% -1.0% 4.1% 13.9%

    Past performance isn't a guide to the future. Source: Lipper IM to 28/02/2021.


    FSSA Asia Focus

    An experienced team hunting for gems in an exciting area

    Asian economies held up much better than most of the West during the height of the coronavirus pandemic. They learnt important lessons from previous times of crisis, and this put them on the front foot when dealing with the most recent outbreak.

    This isn't the first time we've seen Asian markets strengthen. Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the region. Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth. These countries have also become hotbeds of innovation and some companies based there are at the forefront of technology.

    Domestic consumption is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth.

    This development is expected to continue over the years, which could provide exciting growth opportunities for investors. That said, as younger economies, the risks are greater and more volatility should be expected when investing in these markets. While Asia is home to developed markets such as Hong Kong and Singapore, others, including China and India, are still emerging, so a long investment horizon is essential to help ride out the ups and downs.

    We highlighted the FSSA Asia Focus fund last year, given our positive outlook for the region, and we continue to believe the FSSA team has the ability to uncover some of the most exciting opportunities there. The fund invests in a range of Asian countries and could fit into a more adventurous portfolio focused on long-term growth potential.

    Not only does the team invest in companies in some of the fastest-growing regions of the world, they focus on those that put social and governance issues at the heart of what they do. We like this philosophy. The team cares about the impact their investments have on the world around us, and invest clients’ money as if it were their own.

    The team, headed by the experienced Martin Lau, has built an exceptional track record and shown an ability to invest in companies with great long-term prospects. Since this fund launched in August 2015, it's grown 135.1%* compared with 134.7% for the IA Asia Pacific ex Japan sector. Past performance isn’t a guide to the future though.

    FSSA ASIA FOCUS - PERFORMANCE SINCE LAUNCH

    Past performance isn't a guide to the future. Source: *Lipper IM to 28/02/2021

    Annual percentage growth
    29/02/2016 to 28/02/2017 28/02/2017 to 28/02/2018 28/02/2018 to 28/02/2019 28/02/2019 to 29/02/2020 29/02/2020 to 28/02/2021
    FSSA Asia Focus 32.7% 18.0% 0.3% 8.3% 23.7%
    IA Asia Pacific ex Japan 39.7% 14.0% -3.0% 3.6% 31.0%

    Past performance isn't a guide to the future. Source: Lipper IM to 28/02/2021.


    Artemis Strategic Bond

    Offering flexibility to look for value in all parts of the bond market

    Different assets can form an important part of an investment portfolio, depending on its aims and risk tolerance.

    Company shares have the potential to deliver long-term growth, and some even pay dividends, but are likely to be volatile along the way. Bonds carry their own risks, but on the whole bond funds could provide some modest growth along with an income. Importantly, they provide diversification, and could provide some stability compared with shares in more difficult markets.

    Artemis Strategic Bond is managed by James Foster and Alex Ralph, two experienced fixed income managers. They shift between different areas of the bond market, moving between government bonds, investment-grade corporate bonds, and higher-risk high-yield bonds as conditions change. This is determined by their views on the economy combined with their analysis of the prospects for individual companies and governments. The managers also have the flexibility to use derivatives, which adds risk if used.

    When the managers are concerned about the economy, they're likely to invest more in lower-risk government bonds and less in high-yield bonds. They'll do the opposite and be more adventurous when they’re positive in their outlook. That said, they want the fund to be balanced, with the potential to perform well in a variety of economic conditions.

    We saw their readiness to be flexible throughout 2020. For example, the fund had 40% in government bonds heading into the coronavirus crisis, but the managers subsequently sold some of these to buy bonds issued by investment-grade-rated companies at attractive prices.

    The managers have a strong track record and outperformed the Strategic Bond sector over the long term. Although past performance isn’t a guide to future returns. A willingness to invest more in high-yield bonds can increase the income paid, but it does make the fund a more adventurous option in its sector. Overall we think the fund could add a little spice to a bond portfolio, or add some diversification to a portfolio focused on shares or income.

    ARTEMIS STRATEGIC BOND - PERFORMANCE SINCE LAUNCH

    Past performance isn't a guide to the future. Source: Lipper IM to 28/02/2021

    Annual percentage growth
    29/02/2016 to 28/02/2017 28/02/2017 to 28/02/2018 28/02/2018 to 28/02/2019 28/02/2019 to 29/02/2020 29/02/2020 to 28/02/2021
    Artemis Strategic Bond 12.9% 5.4% -0.3% 7.3% 3.6%
    IA £ Strategic Bond 10.7% 2.5% 0.6% 8.0% 3.7%

    Past performance isn't a guide to the future. Source: Lipper IM to 28/02/2021.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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