Chelsea Fund Review Summer 2020: movers and shakers

14 July 2020 - The Chelsea research team has just completed its annual fund review covering more than 200 of our most widely-held funds, grouped into sectors. We give a brief round-up of high-profile upgrades and downgrades, as well as introducing clients to a number of new entries.

Details of all 200+ funds, and their generic ratings, can be found here.

Please note that Chelsea has no knowledge of your personal and financial circumstances and cannot comment on whether the investments you may hold are suitable for you. The generic ratings issued are Chelsea’s views and do not constitute personal advice. These views were correct at time of going to print and we cannot be held responsible for subsequent changes. 

New Entries (generic ‘buy’ rating)

1. LF Miton European Opportunities: this is a multi-cap fund with a bias towards mid-cap companies. Managers Carlos and Tom look for quality companies, which they define through having competitive advantages such as a leading product or strong brand. These firms will be in control of their own destiny rather than being reliant on the wider economic background.
2. Fidelity Asia Pacific Opportunities: Singapore-based manager Anthony Srom has a contrarian instinct and understanding other investors’ sentiment is a key factor in his decision making. He carefully considers the prospects for different industries before making any investment. The fund invests across the market-cap spectrum but around two thirds of the holdings are in large caps. 
3. Montanaro UK Income: this unique fund is run by veteran investor Charles Montanaro. The fund seeks to grow its dividend over time and one of its differentiating features is the fund’s refusal to buy stocks listed on AIM (Alternative Investment Market) as the team believes these are too risky. Early supporters of this fund, including Chelsea clients, have access to the significantly cheaper seed share class. 
4. M&G Emerging Markets Bond: the emerging market bond space is one that is overlooked by many retail investors, but this fund offers an excellently run vehicle in this area. Manager Claudia Calich has a flexible mandate, allowing her to move between local currency or dollar-based debt from both corporations and governments. She can also go anywhere in the emerging market space, including smaller, less mainstream countries

Upgrades

1. BlackRock UK: manager Nick Little primarily looks for two types of stocks in this concentrated fund; those exhibiting structural growth, such as through disrupting an industry, or those that have a competitive advantage and so are able to maintain their position of strength. While mostly UK, Nick will have up to 20% of the portfolio in overseas companies if the best opportunities lie outside the UK stock market. The fund has consistently beaten the market over almost all years of Nick’s tenure and has been deservedly upgraded to a Buy rating.
2. Jupiter European Special Situations: Cédric de Fonclare’s 15-year tenure on this fund ended this year with Mark Nichols and Mark Heslop taking over management of the strategy. Both managers joined the firm from Threadneedle in 2019 and now run a series of European strategies for the asset manager, including the flagship Jupiter European fund. We are monitoring the change in management carefully and would not be surprised if this fund were merged into another fund run by this team. It has been upgraded to a ‘hold’.

Downgrades

1. RWC Enhanced Income: this fund is managed by an experienced trio who joined from Schroders in 2010. The managers invest in strong but lowly-valued businesses, primarily based in the UK. They use covered call options to help the fund reach its 7% yield target, but this can be at the expense of some capital growth. The fund has delivered on income, but total returns have been disappointing, and it has failed to preserve investors’ capital. The fund is usually defensive, and we are disappointed it did not outperform more during the recent market fall. It has been downgraded to a ‘switch’.
2. Artemis Global Income: this fund is truly global in nature, with the manager building a portfolio of 60-90 stocks across more than 25 countries. The structure of the fund typically sees a mixture of medium and large, rather than extra-large companies, as these offer greater potential for both income and capital growth. While the fund has typically followed a value style the manager has begun to add more quality/growth positions in recent times. Poor performance, coupled with a slight change in style, has resulted in us putting this fund on ‘hold’. 
3. M&G Optimal Income, M&G Strategic Corporate Bond and M&G Corporate Bond: this trip of funds is run by Richard Woolnough. He starts by forming a macroeconomic overview based on his outlook for growth, inflation and interest rates, before deciding on individual bonds. M&G Optimal Income has been hugely popular and has grown in size, which may make it harder to change its positioning quickly. All three funds have had weaker performance in recent years and have therefore been downgraded to a ‘hold’. 
4. BNY Mellon Global Income: Nick Clay’s five-year tenure on this fund ended in 2020, with Ilga Haulbert taking control as well as becoming the head of equity income. The fund adopts strict yield criteria; every one of the 40-70 holdings will yield at least 25% more than the FTSE World index. These companies will need to have sustainable competitive advantages, sound fundamentals, and be attractively valued. The fund was formerly known as Newton Global Income and has been downgraded to hold following the manager change. 

No change

1. Invesco High Income and Invesco Income: Ciaran Mallon and James Goldstone became co-managers of these funds in May 2020, replacing Mark Barnett following a prolonged period of poor performance. Having replaced Neil Woodford in 2014, Mark was instantly tasked with managing large redemptions from investors, while the fund’s value tilt also became a significant headwind for performance. However, there have also been a number of stock-specific issues – including investments in unquoted stocks. Ciaran is an experienced UK equity manager who runs numerous funds at Invesco. While a change of manager would normally lead to a fund going to a hold, the likely ongoing redemption profile and expected portfolio changes have resulted in us maintaining a switch rating.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the Chelsea research team and do not constitute financial advice. Whilst we may draw attention to certain investment products, we cannot know which of them, if any, is best for your particular circumstances and must leave that judgement to you. If you are unsure of anything you should seek expert advice.