With Brexit still unresolved and a new government on the horizon, investors will be thinking very carefully about how to position their portfolios for 2020.
Ryan Hughes, head of active portfolios at AJ Bell, looks at four fund options investors could consider until the political landscape become clearer:
Cautious – Royal London Short Duration Global High Yield
“Cautious investors have benefited from strong returns this year as bonds have performed strongly. Looking ahead, the government is indicating higher spending which could well steepen the yield curve. As a result, traditional corporate and government bonds may struggle. One alternative would be to look at short duration high yield bonds which are less correlated to interest rates and bond yields. The team at Royal London are strong and with a focus on bonds that are only 1-2yrs from maturity, protect investors from the full impact of yields increasing. With cash rates so low, this may be a way of eking out a little extra return but of course doesn’t come without some risk.”
Balanced – Jupiter UK Special Situations
“Manager Ben Whitmore has managed the fund for 15 years, employing a consistent approach that focuses on companies that have materially underperformed the market. Whitmore looks for fundamentally sound companies that are unloved by other investors and priced below true value. As a natural contrarian, the portfolio can look very different from the index which is a positive, with the portfolio currently tilted towards domestically focused companies that may come back in the spotlight should a resolution to Brexit and the election be found.”
Adventurous – Schroder Global Recovery
“Value investing has been out of favour for a long period as investors have been focusing on quality growth stocks and bond proxies. However, the last couple of months have started to show a small turnaround and this certainly has the ability to continue through 2020, particularly if we see a steepening of the yield curve. Valuations of value stocks have certainly become very cheap on a PE basis with some solid businesses now sitting on a PE ratio of less than 10. The team at Schroder’s are very disciplined in their approach with Nick Kirrage and Andrew Lyddon having many years’ experience of running money in this way. Importantly, they are comfortable investing away from the benchmark and while performance has been underwhelming, should value come back into favour, they are very well poised to benefit.”
Income seekers – Man GLG UK Income
“There are many income funds available that simply allocate to the big dividend payers in the index but this fund is different. Manager Henry Dixon takes a multi cap approach and also has a value bias, potentially gaining a double boost from a positive resolution to Brexit. In addition, the manager can invest in corporate bonds if appropriate, albeit in a limited manger making this a slightly different UK equity income fund. The strategy currently yields over 5% and pays monthly making it an interesting option for income seekers.”