The IA UK All Companies sector houses 268 constituents. Here, Darius McDermott gives his best picks for the space.
Large-caps: Investec UK Alpha
If you are looking for a predominantly large-cap fund, Investec UK Alpha fits the bill: it must have at least 50 per cent of its holdings in the FTSE 100. Typically investing in 50 to 90 companies, manager Simon Brazier believes that markets are excessively focused on short-term factors and that many analysts concentrate on the next set of results and not where a business will be in five years’ time. This creates opportunities. He looks to buy companies that are adding value for shareholders by allocating capital efficiently. Investing in proven management teams is very important.
Large-cap with a twist: Threadneedle UK Extended Alpha
This fund invests primarily in large UK companies, but with a twist. The manager aims to extend investors’ potential returns by buying stocks he expects to do well and looks to make money on stocks he expects to do badly (shorting). So far, this strategy has proven very successful and the fund has impressively beaten its peers and the UK stock market under the manager’s tenure. It offers something different to its UK equity peers and we think Chris Kinder is a very strong manager with a robust and sensible process.
Mid- and small-cap: Chelverton UK Equity Growth
If you prefer a fund that invests further down the cap scale, Chelverton UK Equity Growth is worth a look. It invests purely outside the FTSE 100 and has a bias towards the smaller end of the UK stock market. Chelverton is a small boutique asset manager which specialises in small- and medium-sized UK companies. Its philosophy is to focus on doing just a few things extremely well. This particular fund was launched in October 2014 and is run by veteran manager James Baker. It invests in expanding businesses which can fund their own growth. High margins and shareholder-friendly management are also important factors.
Growth style: Marlborough UK Multi Cap
Marlborough has a fantastic track record when it comes to investing in smaller companies, so this multi-cap fund, run by Richard Hallett, tends to fall under the radar. Investing more in larger companies than other funds from the group was a deliberate move to pick up on the growth opportunities across the whole market spectrum, and it has been successful in doing so. Hallett invests principally in companies that are leaders in their sector, can defend against rivals and that can grow regardless of the prevailing economic landscape.
Value style: JOHCM UK Dynamic
Value as a style has been out of favour for some time, but JOHCM UK Dynamic has managed to outperform. Since its launch 10 years ago, manager Alex Savvides has shown himself to be a very talented and determined investor. At the heart of his process is the idea of profiting from the uncertainty that change can bring. Stocks are divided into three types of opportunity: restructuring, recovery or growth. Savvides will look to buy into stocks after the share price has been hit and then wait for the business to normalise as the new strategic approach takes effect. While not a stated aim of the fund, a natural income is produced: currently 3.4 per cent.
Economically insensitive: Liontrust Special Situations
For investors wanting high-conviction, multi-cap exposure to the UK stock market, this fund ranks among the best. Using the managers’ highly regarded Economic Advantage process, Liontrust Special Situations only invests in UK firms with distinctive, intangible strengths that competitors struggle to reproduce. This intellectual capital includes strong distribution networks, recurring revenue streams and products with no obvious substitutes. Another factor is how key employees are motivated, with the preference being for direct ownership of the firm’s equity. The portfolio consists of businesses that can grow earnings independently of the wider economy.
Ethical: Standard Life Investments UK Ethical
If your client is looking to invest responsibly, SLI UK Ethical is one of the best in this sector. Run by Lesley Duncan, it encapsulates the best ideas from the experienced team at Standard Life Investments. It is unconstrained other than the screening factors, which are built by the responsible investment team, who derive their criteria from, among other things, a survey to clients about what they deem as unethical sectors, or conversely, positive investment areas. Duncan has what she calls a “no compromises” policy on this – if a stock doesn’t pass, it cannot go in.
Darius McDermott is managing director at FundCalibre