I celebrated my first Thanksgiving Day this weekend. Courtesy of an American colleague, I got to sample a Turkey (one of some 45 million that are eaten by Americans on Thanksgiving day alone*), sweet potato and marshmallow mash, cornbread, cinnamon glazed carrots and homemade stuffing… followed by pumpkin pie and apple pie.
Before we sat down to eat, we each had to say three things for which we were thankful – not including Rennies.
So, as I sit here today thinking about doing some extra exercise, I thought it might be nice to look at three different types of funds for which we could also be thankful.
Governments – just like you and I – need loans sometimes. So they issue bonds. The money they get then goes towards all sorts of things, like financing projects or even day-to-day spending on services. This is why I think we can be thankful for them.
In the UK they are referred to as ‘gilts’ and in America they are referred to as ‘US treasuries’. Government bonds of developed markets are usually deemed to be less risky than those issued by governments in emerging markets. The latter will usually pay a higher yield to compensate for the extra risk.
TwentyFour Corporate Bond fund looks to achieve the highest possible income, with the least amount of volatility. Because of its focus on minimising risk, the fund mostly holds investment-grade bonds. However, it will also selectively hold other fixed income assets and, at the moment, has 12% allocated to UK government bonds – one gilt that matures in 2028 and another that matures in 2045**.
Managed by James Foster and Alex Ralph, Artemis Strategic Bond fund can invest across regions, but usually focuses on the UK, US and Europe. The 100-130 holdings portfolio is diversified by sector, the quality of the underlying company and the time until bonds mature. It currently has 38% of the portfolio invested in government bonds**. The top ten holdings include two UK gilts and five US treasuries. In fact, the managers added to their 10-year US treasuries in October.
Responsible investing covers a number of areas including, but not exclusive to: sustainability; environmental, social and governance (ESG); and ethical investing.
Funds in this category may invest in any asset class and their level of ‘responsibility’ will vary. Some funds will use negative screens, which means they avoid certain investments. Some will have positive screens, meaning they look for, and encourage, best practice. Others will have a combination of both.
While momentum behind this type of investing has grown over the past couple of years, a number of funds have been investing this way for decades. I, for one, am thankful for their foresight.
Edentree Amity UK is the longest-established ‘ethical’ fund in the UK and has been run by Sue Round since its launch in 1988. It invests in UK companies of any size and currently has 53.3% in large-caps, 27.3% in mid caps and 19.4% in smaller companies**. As pioneers of responsible investing, EdenTree offers even the most discerning client a justifiable investment opportunity. Responsible investing is a key factor in decision making, with any potential investment having to pass through a rigorous multi-factor screening process.
Rathbone Ethical Bond fund has been run by manager Bryn Jones for more than 15 years. It invests in investment grade bonds of reliable companies with solid business plans and stable management teams. It has a higher income target than most of its peers whilst still taking an average level of risk. Ethical exclusions are simple: no mining, arms, gambling, pornography, animal testing, nuclear power, alcohol or tobacco, which rules out about one third of the index. All positions must also have at least one positive environmental, social or corporate governance quality.
Thanks to Brexit and political uncertainty (although I’d like to stress I’m not thankful for either of these two points!), the UK stock market has been unloved for some time. Coupled with the structural problems facing our retailers - as more and more people look to shop online rather than on the high street - and we’ve seen a number of businesses fail in recent years.
My pick, therefore, is UK equity funds: funds that are still investing in UK plc. From those managers who are able to identify UK companies that are able to grow no matter what the economic environment, to those that invest in the most beaten-up and unloved stocks as they see long-term potential.
Managed with a distinct contrarian and value-based approach, Jupiter UK Special Situations fund offers investors access to a well-diversified portfolio of predominantly larger UK companies. The manager, Ben Whitmore, is hugely experienced and has had considerable success running this type of mandate throughout his career. Its top ten holdings** currently include BP, Imperial Tobacco and Vodafone, which of course cut its dividend earlier this year, much to the disappointment of those funds relying on it for income.
Described by Chelsea's fund research team as “one of the most exciting UK funds to launch in recent years”, MI Chelverton UK Equity Growth is a truly active fund. It invests in growing businesses which have plenty of cash on their balance sheets and can finance their own growth. High margins and shareholder-friendly management are also important factors. In a recent fund update**, the managers said: “Against a backdrop of quite considerable political and economic upheaval it is gratifying to note that the fund has now reached its fifth anniversary topping the UK All Companies sector.”
*Source: Goldman Sachs
**Source: fund factsheet, 31 October 2019
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. Sam's views are her own and do not constitute financial advice.