Five hidden gems to snap up this ISA season
So, as we swing into the final few days of ISA season, I have picked five funds I think are hidden gems in the investing world. These funds are all still quite small – each has less than £200m under management – but could still pack a punch in your portfolio.
F&C UK Mid Cap
This contrarian gem might not be everybody’s cup of tea at the moment, given Brexit-related uncertainty and the fact that the UK’s medium-sized companies are often more exposed to the domestic economy than their larger counterparts.
However, we believe that manager Thomas Wilson’s stock selection process means he can unearth the cream of the crops, regardless of any macroeconomic ‘noise’. Thomas chooses each holding in his portfolio based purely on company fundamentals. He has high conviction in the stocks that he owns; the entire portfolio will only consist of between 25 and 35 stocks at any one time. He has a keen focus on capital preservation, will only buy into companies with low levels of debt and ensures that each individual holding is well-diversified.
Standard Life Investments Global Equity Income
For a more regionally diverse offering, Standard Life Investments Global Equity Income could be another hidden gem to consider. Headed up by Kevin Troup, it invests in companies which are either already paying, or are likely to pay, a dividend. Unlike most of his peers, Kevin is also able to hold government and corporate bonds if he thinks the investment case merits such a position.
Investors shouldn’t expect this fund to be one of the highest-yielding in its field. But what we like about this fund is that the team isn’t limited to sticking with the highest-yielding stocks in the investable universe, and can instead opt to hold what they deem to be the dividend stars of the future.
Threadneedle UK Extended Alpha
If you’re worried about markets falling, Threadneedle UK Extended Alpha could be a good option. This is because as well as buying shares he thinks will go up, he can also ‘short’ some shares – or, in other words, make money from their falling prices.
While this increases the fund’s dependence on manager Chris Kinder’s stock-picking skills, it also means he is better-equipped to make money across all market conditions and to generate higher, more differentiated returns than a fund that can only hold stocks that are liked. That said, no more than a third of this fund will be invested in stocks the manager dislikes.
Aviva Investors High Yield Bond
For investors wanting a higher income, Aviva Investors High Yield Bond, is an option. It invests mainly in UK and European bonds, although it is able to go further afield if the manager sees an opportunity. Its attractive yield – which currently stands at 4.55% – is achieved through holding at least 80% of the portfolio in high-yield bonds, while the remaining 20% can be held in investment-grade bonds or cash.
It’s a higher-conviction portfolio than many other bond funds and holdings are chosen with a strong total return in mind, rather than simply aiming to achieve the highest possible level of income.
Aberdeen Latin American Equity
An option for a longer-term investor would be Aberdeen Latin American Equity. Latin America is a higher-risk area of the market, but patient investors with strong stomachs could be well-rewarded.
The Aberdeen Global Emerging Markets Equity team invest with an absolute return mindset, rather than with the aim of beating a benchmark. In fact, they believe that an index can’t provide an accurate measure of a company’s worth, and nor does a company’s inclusion in an index mean it is high quality. As such, their portfolio will often look very different from the index, with the team focusing on company traits such as strong balance sheets, quality of management teams and past treatment of minority shareholders.
Juliet Schooling Latter, research director, Chelsea Financial Services and FundCalibre
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. Juliet’s views are her own and do not constitute financial advice.