Introducing the new entries on the Chelsea Selection, October 2018

The Chelsea Selection is a list of funds our research team deem to be worthy of consideration for your investment portfolios. We have met every single manager of the some 100 plus funds on this list.

We review our choices at least three times a year and, at our last research meeting, we decided to add nine new funds to the Chelsea Selection.

Here is a little more detail on each of the new entrants:

1. Artemis UK Select

Manager Ed Legget is no stranger to the Chelsea Selection, having had his Standard life Investments UK Equity Unconstrained fund on the list a few years ago. In 2015 he moved company, joining Artemis and assuming management of the Artemis UK Select fund. After a tricky start, we believe Ed is now settled in to the new company nicely and is well supported by his deputy, Ambrose Faulks. This fund offers investors access to a truly active manager, investing mainly in the UK's largest and medium-sized businesses.

Chelsea Risk Rating*: 7

2. First State Greater China Growth

This very specialist fund is run by Martin Lau, a senior member of the famed First State Stewart Asia team. Martin is based in Hong Kong and has run the fund since its launch in 2003. The fund was on the Chelsea Core Selection for some time. However, demand for the fund was so fierce that it was closed to new investments for four years. It reopened to new investments in February 2016. Martin's process is to look for well-managed businesses with good corporate governance in Hong Kong, China and Taiwan. These companies will have sensible management and both sustainable and predictable growth.

Chelsea Risk Rating*: 10

3. FP Crux European Special Situations

This fund also benefits from having a manager who was previously on the Chelsea Selection – in fact, the fund was originally the Henderson European Special Situations fund, and it moved with Richard Pease when he left Henderson to form his own company. It is now called Crux European Special Situations and has therefore had the same manager since its launch in 2009. It invests in around 60 stocks and has a strong focus on small and mid-caps. It is unconstrained by country, and focuses on quality, cash generative companies that can do well, even if markets become challenging.

Chelsea Risk Rating*: 7

4. Guinness Asian Equity income

Run by co-managers Edmund Harriss and Mark Hammonds, Guinness Asian Equity Income is a concentrated portfolio of just 36 equally-weighted stocks. The managers invest in companies from the whole Asia Pacific region, including Australia and have a one-in, one-out policy. Ed and Mark use their screening tools to great effect, looking for companies making a real return on investment of at least 8% for each of the past eight years. Only around 7% of Asian listed companies get through this screen. The managers then reduce their universe further by excluding highly indebted companies and those less than $500 million in size. That leaves them with around 300 companies to research more thoroughly.

Chelsea Risk Rating*: 8

5. LF Livingbridge UK Multi Cap Income

This is a concentrated multi-cap income fund with a heavy bias towards smaller companies. Manager Ken Wotton also runs the highly successful Livingbridge UK Micro Cap fund, which is on the Chelsea Core Selection. This fund targets an initial yield of 4% and benefits from Ken's unrivalled expertise in the small-cap space and his experience investing in early stage companies in VCTs. Some parts of the market, such as oil and gas, mining and property, are deliberately ignored, as the team prefers to concentrate its resources on areas where it thinks it has an edge. Ken prefers simple businesses with a clear strategy and a large market opportunity.

Chelsea Risk Rating*: 7.5

6. Schroder European Alpha Income

While many peers will invest in the standard dividend aristocrats and have a bias towards quality growth companies, Schroder European Alpha Income fund has no such style bias and will invest in more cyclical companies too. So it offers investors something a bit different. Manager James Sym uses Schroders' well-resourced investment team and a network of external brokers to source ideas and has shown a strong ability to pick successful companies. This has been reflected in the fund's excellent performance under his tenure – performance that has been achieved without the style tailwind some of his peers have enjoyed.

Chelsea Risk Rating*: 7.5

7. Slater Growth

Manager Mark Slater is the son of legendary investor Jim Slater and uses the same investment philosophy: the Zulu principle. Mark doesn't try to be a jack of all trades – he specialises in a specific area and spends a great deal of time and focus researching the market and really getting under the skin of the companies he invests in. Essentially, he looks for growth companies on a low valuation with strong cash flows and the portfolio has a bias towards smaller and medium-sized companies. Slater Growth was launched in 2005 but has remained very much under the investors' radar. It has an outstanding long-term track record.

Chelsea Risk Rating*: 7

8. TB Amati UK Smaller Companies

This fund is run by a team of four, with Dr. Paul Jourdan lead manager. He founded Amati Global investors with co-manager Douglas Lawson following the management buyout of Noble Fund Managers from Noble Group in 2010. He took this fund with him to the newly formed company. Co-manager David Stevenson joined the team in 2012 and Anna Wilson joined earlier this year. The team are specialists in small and mid-cap investing and, like the Livingbridge team, are able to use their experience in running VCTs to help them get early access to some exciting growth opportunities. 

Chelsea Risk Rating*: 8

9. TB Evenlode Global Income

The TB Evenlode Global Income fund aims to emulate the success of the TB Evenlode Income fund, which is on the Chelsea Core Selection. Run by Ben Peters (who also helps run the UK fund) and Chris Elliott, it has a wider remit but a clear investment philosophy, which has already been proven on the TB Evenlode Income fund. The managers look for quality companies with three characteristics: asset-light business models; high barriers to entry which can’t be disrupted easily; and their customers’ decision to buy their product or service should not be determined completely by price.

Chelsea Risk Rating*: 6

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*The Chelsea Risk Rating is simply a generic guide to the relative risk of funds within the market. It is up to you to determine your optimum asset class mix. It is based on our in-house research and attempts to quantify the relative risks of funds, to give you an idea of how risky one fund is versus another. A fund rated five, in the middle spectrum, does not mean it is suitable for medium risk investors, merely that according to historic volatility, and our understanding of the investment process, we think that it is more risky than a fund rated four and less risky than a fund rated six. Even funds rated one are subject to risk.

Published on 23/10/2018