3 Open-end Funds for Your Pension

THE VALUE INVESTOR: Pension investors should consider these top rated funds that have recently underperformed their peers - they could be due a bounce

Emma Wall 13 March, 2014 | 2:15PM
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When choosing funds for your personal pension, investors can afford to take a long term view. Although you can manage a SIPP portfolio throughout the growth stage of your pension pot, excessive trading will result in unnecessary fees which have a negative impact on returns.

Instead, choose highly rated funds that operate in more risky categories, but have potential for considerable upside; such as emerging market funds, or those that invest in smaller companies.

Choosing funds that are highly rated but have recently underperformed their peers can mean you are buying cheap opportunities with potential for fantastic returns.

Morningstar funds are rated in two ways – the Analyst Rating determines the potential for future returns, while the star rating measures funds’ past performance. The following funds invest in riskier assets and are highly rated but have recently trailed the average fund in their Morningstar category.

Artemis Smaller Companies

This Gold Rated fund has a two star status. Morningstar analyst Chetan Modi says recent performance has been challenging, but he retains conviction in the fund.

“The fund had a difficult year in 2012 while 2013 thus far has also been difficult as the fund trails its average peer by a significant margin,” he said. “One of the reasons for the underperformance is that the fund’s typically higher exposure to micro-cap stocks has been a headwind, particularly in 2012. Despite the recent underperformance, our conviction in the manager and his consistent application of a robust strategy remains. Fund manager Niznik focuses on high-quality companies that demonstrate resilient business models.”

M&G Recovery

This Gold Rated fund has a two star status. Modi says the analyst rating is due to the impressive management stability and broad diversification.

“Since it was launched just three managers have guided it over its 43-year lifespan,” he said. “Current manager Tom Dobell invests in companies that are in recovery situations and, in particular, companies that have undergone management changes or have underperformed the market. Dobell has rewarded investors with stellar performance over the long term.”

First State Global Resources

This Silver Rated fund is in a sector that has had a bad couple of years. Resources funds have the potential to be very volatile and therefore typically form only a small part of an investor’s broader portfolio, but this is one of the best.

Morningstar analyst Fatima Khizou says the long-term focus is on firms with high-quality reserves and costs at the lower end of the cost curve. This means the fund can lag in strongly momentum-led markets, but it should offer a degree of downside protection. 

We used the free Morningstar FundScreener to find funds that had a high Analyst Rating and a low star rating, indicating they had recently underperformed their peers

Want to know more about Morningstar fund ratings? Click here

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Artemis UK Smaller Companies R Acc19.78 GBP0.49Rating
M&G Recovery GBP A Acc318.71 GBP1.56Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar