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Scottish Mortgage trust and Fidelity China among the top funds to watch in 2021


Three funds with new managers at the helm, three funds that were highest rated for last year, three funds coming of age and a trio hoping for better fortunes for their asset class are all “best of breed” in their sector and worth watching for 2021, according to FundCalibre.

Baillie Gifford American was the best performing fund in 2020, FundCalibre said, a year where the challenges were “almost biblical at times”.

“Run by a team of four co-managers who focus on the small number of companies that create exceptional returns, it returned 122% in 2020 versus 16% for the average peer,” said FundCalibre’s Darius McDermott

Scottish Mortgage Investment Trust PLC (LON:SMT), also managed by Baillie Gifford, doubled its share price and was the second best performing product rated Elite by FundCalibe.

With its largest holding being Tesla, a stock that rose around 600% in 2020, its strong performance is no surprise, with a return of 110% versus 15% for the average peer.

Another investment trust was third best performer, Fidelity China Special Situations PLC (LON:FCSS).

“Run by Dale Nicholls, this trust has a bias towards small and medium-sized companies and offers investors direct exposure to the China growth story,” says McDermott, noting a 69% return in 2020 compared to a sector average of 28%.

Nicholls, who took over from UK star fund manager Anthony Bolton six years ago, has more than doubled investors’ cash since he took over, something that investors will be hoping at a number of funds where long-time fund managers stepped down last year, though.

The trio selected by FundCalibre have well-signaled succession planning and lengthy handover processes, including at the open-ended Marlborough Special Situations, which has been run by Giles Hargreaves since 1998.

It was the best performing fund in its sector over his tenure, returning 3,760% compared with 641% for its average peer.

Hargreaves hands over the fund to Eustace Santa Barbara, who has co-managed the fund since 2014, and Guy Feld, his co-manager on Marlborough UK Micro-Cap Growth fund, which has also been handed over to the same duo.

BlackRock European Dynamic’s Alister Hibbert, who had run the fund since March 2008, handed the management of this fund to Giles Rothbarth at the end of 2020.

Hibbert’s return of 430% over his tenure, compared to 131% for the average peer, was also the best performing fund in the sector.

Rothbarth has been co-manager since 2019 and is “an impressive manager from a very strong team”, but due to his short tenure, FundCalibre has moved its rating from Elite to ‘Elite Radar’.

Schroder Asian Alpha Plus manager Matthew Dobbs, who is retiring after nearly four decades at the firm, is handing over this fund to Richard Sennitt in March 2021.

Sennitt is an ‘Elite’ rated manager of Schroder’s Asian Income fund and, having worked alongside Dobbs for many years, will run it in the same way and with the same process.

Coming of age

“A third anniversary is a real milestone in the investment world, as three years is deemed to be a long enough period to properly assess a fund manager’s skills,” says McDermott, with three years also the minimum tenure required for a fund to be considered for its Elite rating.

The Rathbone Global Sustainability unit trust, a high conviction global equity fund that can invest in companies of any size, turns three in July.

It is run by David Harrison who focuses on selecting stocks with strong cash generation and will actively avoid businesses involved in unethical or unsustainable practices.

In September it will be the time for TM CRUX UK Special Situations, which was launched under manager Richard Penny after he moved from L&G.

It invests in UK companies of all sizes but will typically have more of a focus on medium and smaller companies, with some FTSE 100 names.

The third name turning three is Federated Hermes Global Emerging Markets SMID Equity, which also launched in September 2018.

Similarly it also focuses on small and medium-sized companies but has a global emerging markets remit. It is co-managed by Gary Greenberg and Kunjal Gala, who will become lead manager in 2022, when Greenberg retires.

Asset turnaround hopes

While technology was one of the areas that did very well in 2020, many other sectors did not fare so well.

Trading in physical property funds, for example, was suspended due to liquidity issues, including the TIME: Commercial Long Income open-ended fund.

The TIME fun, which invests in commercial freehold ground rents and commercial freehold property, which benefit from long leases, is still suspended, though around 80% of rents have been collected during the pandemic and the managers are optimistic that annual income should continue to be around 3%.

With Brazil one of only two countries that managed to underperform the much unloved UK market, this dragged down the rest of Latin America, and contributed to a dire 2020 for the ASI Latin American Equity fund after a good 2019.

“The hope of a strong economic rebound could turn things around in 2021,” said McDermott. The team behind this fund looks to identify and build large positions in high quality companies that are trading at reasonable valuations. Four to five company visits usually take place before an investment is made.”

FundCalibre also likes the process at LF Gresham House UK Multi Cap Income, which was down around 6% last year.

“This multi-cap fund has a strong process and benefits from manager Ken Wotton’s unrivalled expertise in the small-cap space. The UK Equity Income sector was the worst performing sector of all in 2020, losing almost 11% on average. With a Brexit deal and vaccine roll-out it’s hoped the UK market will catch up in 2021.”

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