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Riding the technology wave - our monthly research round-up

15 February 2018

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Finding funds with the best long-term prospects is at the heart of our research.

But looking at individual funds isn’t the only thing we do. We also consider stock market trends, and what’s going on in the wider economy. This helps us understand how a fund has performed the way it has, and how it might perform in future.

Technology disruptors

Asian and emerging countries were home to some of the world’s best-performing stock markets over the past year. Against an improving global economy, investors favoured these higher-risk markets, benefiting share prices.

What’s interesting is the fact that the share prices of technology companies drove much of these returns. Investors have grown increasingly optimistic in their outlook and a number of larger Chinese internet businesses, such as Tencent and Alibaba, were particularly strong. Please bear in mind that this is over a very short period and past performance is not a guide to the future.

Past performance is not a guide to future returns. Source: Lipper IM, correct at 31/01/2018

Annual percentage growth
Jan 13 -
Jan 14
Jan 14 -
Jan 15
Jan 15 -
Jan 16
Jan 16 -
Jan 17
Jan 17 -
Jan 18
FTSE EM Technology 14.9% 36.1% -4.1% 41.8% 48.6%
FTSE AW Asia Pacific ex Japan -8.0% 21.4% -12.4% 39.2% 20.6%
FTSE Emerging -15.0% 20.0% -16.7% 43.3% 22.0%

Past performance is not a guide to future returns. Source: Lipper IM, to 31/01/18

We recently reviewed the Asian and emerging markets sector and found funds with a bias towards technology and internet businesses delivered handsome returns. Those with less exposure still delivered attractive returns, but missed out on some of the stronger gains.

Some fund managers suggest the higher prices of these companies is justified because they’re profitable and generate lots of cash. Others argue prices have risen too far, too fast – if future earnings growth doesn’t meet investor expectations, their share prices could be vulnerable to a setback.

Given corporate governance has historically been questionable in emerging markets, some investors are also wary these companies tend to be run by management teams with shorter track records than more-established firms.

We think it’s sensible to invest in a variety of funds with different investment styles or areas of focus. By definition, all active funds won’t outperform all of the time, so investing in a number of different funds could provide more consistent returns over the long term. This is especially true when investing in higher-risk areas such as Asia and emerging markets.

Our favourite Asian and emerging markets funds currently feature on the Wealth 150+. Alternatively, investors may wish to consider the HL Multi-Manager Asia & Emerging Markets Fund, a carefully crafted collection of our favourite funds in this sector. The fund is run by our sister company, HL Fund Managers, and there are additional charges involved in running a multi-manager fund.

Find out more about the HL Multi-Manager Asia & Emerging Markets Fund

Don’t dismiss the UK

A lot of investors remain wary of investing in the UK because of political uncertainty and concerns over Brexit. But we don’t think investors should write off their home market so easily, and we’ve recently met a number of fund managers who agree.

Richard Watts, manager of Old Mutual UK Mid Cap, is mindful of the risks posed by Brexit, but he thinks they’ve been exaggerated in the media.

He believes many companies that are sensitive to the health of the economy have been wrongly shunned by other investors. This has made their share prices look attractively valued when you consider their future growth prospects. He’s taken advantage by adding to investments in housebuilders Taylor Wimpey and Barratt Developments, and challenger bank One Savings Bank.

Clive Beagles and James Lowen have also invested more of their JOHCM UK Equity Income Fund in domestically focused UK companies. They also think the share prices and valuations of many UK businesses are depressed as investors worry about the UK’s prospects post-Brexit.

But the managers are more positive than most. They’re happy to hold some retail businesses including Kingfisher, the owner of B&Q, and Screwfix. They also own some housing and construction-related companies, such as Bovis Homes.

The funds can invest in small and medium-sized companies, which tend to be higher-risk than their larger counterparts.

Please note the JOHCM UK Equity Income Fund carries a performance fee, details of which can be found here.

Old Mutual UK Mid Cap Update

JOHCM UK Equity Income Update

Wealth 150 update

We recently removed the River & Mercantile UK Dynamic Equity Fund from the Wealth 150+ following the departure of Philip Rodrigs, the fund’s manager.

William Lough has taken over management of the fund. He’s been an analyst on River & Mercantile’s Equity team and worked on a number of their funds, but has no track record running a fund in his own right.

In light of Philip Rodrigs’ departure we’ve removed the fund from our Wealth 150+ list. The list is reserved for managers we think are the best in their fields, with a demonstrable track record and the most competitive ongoing charges.

Read our latest research update on the fund

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Investment notes
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
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