Artemis’s Income fund and the Axa Framlington UK Select Opportunities fund were some of the largest funds dropped by FE‘s in-house analysts as they took a bullish stance on the market following the biannual review of the FE Invest Approved fund list and the FE Invest MPS (Model Portfolio Service).

Rob Gleeson, head of FE Research says: “We had taken a reasonably defensive position at the last rebalancing. Whilst we couldn’t have predicted the Chinese market imploding the way it did, we were wary that the gains of the last year were due to reverse at some point as the Chinese economy continued to slow. 

“This decision paid off finally following the major market correction. At this rebalancing we’re putting some risk back on the table; we don’t think that now is the time to be going defensive, the horse has already bolted.

“While we’re concerned about various headwinds facing most major economies, and remain cautious in general – we have moved to soften our defensive stance. Primarily this means further reducing bond exposure in favour of equities where appropriate. This is as much to manage downside risk as to enhance growth potential”.

Funds out

During the latest biannual review, and the first to be made public, 13 funds were sold - with large funds experiencing the majority of the rebuff. 

The Axa Framlington UK Select Opportunities fund, and the Jupiter European Special Situations fund were both demoted from 5 to 4 FE Crowns in the recent FE Crown Ratings rebalance with their performance unsurprisingly playing a role in the decision to sell.

Charles Younes, analyst at FE, says: “The Axa fund suffered in the first half of 2014 due to the market rotation from medium-sized growth companies to large value stocks. The performance had a small rebound in the first half of 2015 but we lost confidence in the manager’s capacity to rebound.”

Similarly the Artemis Income fund was cut due to its average returns. While the fund management team remains strong, there is stiff competition and very little tolerance for less than exceptional performance.

Another large fund to be let go was the Schroder UK Dynamic Smaller Companies fund. The fund struggled when it became too large - causing a dip in performance. Since then it has slimmed down although the FE Research team are unconvinced that the management team have put steps in place to prevent the same mistakes happening again.

Other sizeable funds that were demoted include the Jupiter European Special Situations fund and the Invesco Perpetual Income and Growth fund which were also dropped from the shortlist. Due to the Jupiter fund’s poor stock selection and the Invesco fund’s lack of differentiation in respect to other funds on the list.

Funds in

The addition of some more aggressive funds, such as the Old Mutual UK Dynamic Equity fund and the Standard Life Investments UK Equity Unconstrained fund, shows a relaxing of the previously defensive stance. The FE Research team have paid particular attention to funds that have delivered high returns as a result of creative investment strategies.

The Old Mutual UK Dynamic Equity fund impressed FE’s Research team with its ability to offer growth when the markets were both down as well as up.

The fund is able to take both long and short options to achieve its aim of capital growth and the FE research team were impressed by the manager’s ability to overcome the challenges associated with this strategy. 

Similarly, the Fidelity Global Special Situations fund’s creative strategy has impressed.

“The fund’s manager Jeremy Podger buys three types of company. The weighting to these three buckets changes over the course of the business cycle which is designed to make the fund able to outperform in very different market environments.

“Indeed, since taking over in 2012, the manager has turned the fund into one of the most successful Global Equities funds” say the FE Research team.

The Standard Life Investments Equity Unconstrained fund adds diversity to the portfolios with a high risk strategy that focusses on mid cap companies.

The JPM Europe Dynamic ex UK fund and the Standard Life Investments Global Advantage fund were also added to the shortlist.

Source: FE Research