Emerging markets and commodities may be two of the more unloved areas of investment at present but funds that focus on these asset classes feature among the five highlighted by Schroders' head of multi-manager Marcus Brookes as potentially interesting possibilities for last-minute ISA allocations.
"Emerging markets have underperformed developed markets over recent years, and it is an area we have largely been avoiding," he admits. "However, we recent started dipping our toe back in the water as we think the region is starting to become more attractive.
"One of the funds we like in this area is Artemis Global Emerging Markets, managed by Peter Saacke and Raheel Altaf, using the firm's ‘SmartGARP' approach. The fund is not too big and cumbersome, which gives it added flexibility to invest across the emerging markets spectrum, and it has a strong team behind it. We think it is a good option for playing the improvement in emerging market fundamentals."
For investors willing to dip a toe back into commodities after a torrid couple of years for the asset class, Brookes picks out BlackRock Gold & General. "Managed by Evy Hambro, this fund invests primarily in gold equities - in other words, the stocks of gold mining companies. The volatility of this fund means it is not one for the faint-hearted and should be scaled in a portfolio appropriately. However, we have a small holding in it and it has performed extremely well in recent months.
"Prior to that, performance was held back by the sharp decline in commodities prices. This led to a situation where valuations were suggesting the mining industry was forever broken - something we thought unlikely. Clearly the fundamentals remain challenging, but we think there is a value opportunity here. If we see a pick-up in inflation, then the gold price could rise, which would be very supportive for the performance of this fund."
Returning closer to home, Brookes highlights Investec UK Special Situations and Ardevora UK Income. "Alastair Mundy has managed Investec UK Special Situations for more than 10 years," he says. "He has a contrarian value bias, which we think is attractive at this stage of the economic and market cycle. Broadly speaking, the value investment style has been out of favour and underperformed growth over the last five years. However, we are starting to see an environment in which we think value investing could make a comeback.
"Recent performance on the fund has been slightly disappointing. This is partly a result of the fund manager slowly buying into the commodities and materials sectors over the last couple of years, in which time they have struggled. But we think the potential in this portfolio could be about to be realised and it has already been adding value in what was a rough start to 2016 for markets. This fund has become an important holding across our Schroders Multi-Manager funds."
On the Ardevora fund, Brookes says: "Ardevora is a boutique asset manager we like very much and this fund is run by Jeremy Lang, an investor who built a strong reputation at his former company Liontrust. This fund is rather different to the Investec offering, in that it is managed with a growth bias. However, unlike many growth-oriented funds, this one invests away from the dull, mega-cap stocks and favours mid-caps and large-caps."
Despite maintaining an underweight exposure to most areas of fixed income, Brookes has turned to the assert class for his final fund pick, JPM Income Opportunities. "The high yield - as opposed to non-investment grade - segment of fixed income is becoming interesting after a period of sustained weakness and we think valuations are beginning to price in higher levels of defaults than we expect," he explains. "The sector also offers a decent yield at a time when income can be hard to find without putting capital at risk.
"We are accessing this sector through JPM Income Opportunities, a flexible fixed income fund managed by Bill Eigen. He has been steadily increasing exposure to the high yield sector and it now accounts for almost 50% of his portfolio - the maximum allowed by his mandate. He is an opportunistic manager and will sell down his exposure again when he thinks the opportunity has passed."
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