From Royal to Recovery: Three Funds Rising up The Rankings

Manager research team analyst Sam Meakin joins Ollie Smith for another look at three exciting funds shooting up the rankings

Ollie Smith 22 May, 2022 | 9:29AM
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Ollie Smith: Here comes another snapshot look at the funds our research team are most interested in at the moment. Sam Meakin joins me to discuss three more strategies lighting up the dashboard at Morningstar's London office. Sam, thanks so much for your time today. What's fund number one?

Samuel Meakin: Thanks, Ollie. Yeah. The first fund I'm going to talk about is Royal London Sustainable Leaders. The fund has a Morningstar analyst rating of Silver for its clean share class. It's a UK equity fund that invests mainly in larger cap stocks. As well as the UK equities focus, it does also make use of the allowance to invest up to 20% overseas, and that's mainly been in the US, historically. The manager is Mike Fox, he's managed the fund since 2003. That makes him one of the longest tenured managers in the sustainability space in the UK. So the fund aims to invest in companies that deliver a net benefit to society, or those that show leadership in ESG practices. And these sustainable characteristics carry equal weight within the investment process alongside the more traditional financial characteristics.

So the team, they look to identify businesses, where the longer term growth prospects are under-appreciated by the market. That is where the team thinks strong growth rates can continue for longer than it is priced in. This growth focus has actually led to some underperformance this year so far. But the longer term returns are very strong still, thanks in part to the strength and the consistency with which Fox has implemented his approach over the years. So despite the shorter term market headwinds, this remains a strong pick in the UK space in our view.

OS: Sure. And on the second strategy, we're going to the UK smaller companies space, aren't we, tell me more?

SM: That's right. So the second fund we're moving from larger cap UK to smaller cap UK so focus on TB Amati UK Smaller Companies. That also has a Silver rating, and there's another long tenured portfolio manager in place here with Paul Jourdan, having been at the helm for over 20 years now. And then working with him is a team of another four portfolio managers and analysts. And overall, the team really boasts a wealth of experience in small cap investing. They also run an AIM-focused venture capital trust, which acts as a source of idea generation for this, the UK smaller companies fund as those companies grow larger.

So the team, they look to focus on companies with a clear competitive advantage, sustainable growth, and high returns on cash invested. But despite that focus on those quality and growth characteristics, which you might expect to lead to specific sectors and areas of the market. They do try to give the fund exposure to other more cyclical areas too. Again, the fund has faced some performance headwinds recently given that investment style, and that there have been one or two stock specific issues as well. But again, we retain conviction here in the experienced team and the well-executed approach.

OS: And then just finally, we're going to Schroder Recovery. Tell me a bit more about that.

SM: Yeah, that's right. So I wanted to turn to a fund where the process has benefited from the value rotation we've seen in markets recently. That's Schroder Recovery. Again, that's rated Silver on the primary clean share classes. Once again, we've got long-standing portfolio managers in place here in Nick Kirrage and Kevin Murphy: they're co-heads of the Schroder's global value team, and they've managed this UK equities fund since 2006. Their approach seeks to identify stocks trading at significant discounts to the perceived fair values. It starts with some valuation screens to reduce the UK market down to a more manageable number of stocks, which they can then conduct fundamental research on. And that research involves really building a thorough understanding of what they expect, normalised levels of profits should be, as well as then digging into company balance sheets to understand the company's financial strength. Their investments are often found in unloved areas of the market, which can make it uncomfortable at times, but it really comes into its own in markets like we've seen recently with value more in favour. And this has really provided it with the strong long term track record overall.

OS: Sam, that's great. For more on ratings research and our fund analyst team, check out our weekly Tuesday updates on Until next time, my thanks to Sam. I've been Ollie Smith for Morningstar.

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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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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