Five unloved funds to buy today

Men's Marathon on Day 16 of the London 2012 Olympic Games on the streets of London on August 12, 2012
Read on for the five funds we think will come from behind to deliver the best returns Credit: Ezra Shaw/Getty Images

Investors frequently choose funds that have delivered the highest returns over the past three or five years.

But, as the adverts say, past performance is no guide to the future. Poor recent performance in nominal terms does not mean a fund is badly managed. Nor does it mean that future returns will not be much better.

Here Telegraph Money identifies five funds that have delivered poor returns in the past but which are positioned to take off.

Jupiter UK Growth

The fund had an awful year last year, losing 7.1pc over 2016, compared to the FTSE All Share which returned almost 17pc. Over five years the fund has returned 68.8pc compared to the FTSE All Share’s 56pc.

So far this year the fund is slightly up on the index, returning 3pc compared to the index’s 2pc.

Fund manager Steve Davies acknowledged that it had been a bad year for the fund in a very honest appraisal of his performance. He said: “The first half of 2016 could not have been much worse for the fund.”

He added that the EU vote had hit the fund, with its domestically-focused holdings, such as Legal & General, Thomas Cook and Dixons, falling hard.

Many of these companies remain cheap in comparison to other parts of the market, when their price is measured against profitability or dividends. This means they could benefit from the market reappraising them over time.

Laith Khalaf, of Hargreaves Lansdown, the fund shop, said that Mr Davies “has a pretty out-of-favour portfolio, including exposure to banks, travel stocks and companies plugged into the UK housing market”.

“However, if you are investing in turnaround stocks then timing entry will never be perfect, and things often get worse before they get better, so an acceptance of volatility and a long-term view is essential,” he said.

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Lindsell Train Global Equity

This globally-invested fund was down last year compared to its index, although not by as far as some others on the list. It returned 23.8pc compared to the MSCI World index’s 28.2pc return. However, over five years it has outperformed impressively - returning 138pc compared to the index’s 100pc return.

It remains down so far this year, having returned 1.5pc in 2017 to date, compared to 2.7pc for the index.

James Bullock, one of the portfolio managers on the fund, said that while the returns over 2016 were steady, they underperformed due to weakened sterling boosting the index.

“2016’s numerous political upsets had a big impact here, boosting returns in sterling terms through the post-Brexit fall in the pound but tempering the relative performance in other ways,” he said.

In particular he highlighted the shift towards “value” companies after Donald Trump’s election as American president, harming the performance of some of the fund’s “quality” names.

Adrian Lowcock, of Architas, a division of Axa, said: “The fund suffered from the 'Trump rally' and the market's sudden switch to value stocks as growth and inflation expectations returned in full.  

“However, manager Nick Train is a long-term investor with a focus on companies with strong brand and cashflow. These businesses will be around in decades' time and are able to whether the economic and indeed political cycles.”

Stewart Investors Asia Pacific Leaders

This emerging market fund underperformed in 2016, returning 19.6pc compared to more than 27pc for the index, the MSCI Asia Pacific excluding Japan. The fund was another victim of the move to “value” stocks at the end of last year.

However, it’s five-year performance is strong: it returned 75.5pc compared to the 53pc return of the index.

The fund has not yet recovered this year, still underperforming the index, but Darius McDermott, of FundCalibre, the fund research company, said it is likely to turnaround this year.

“The fund was hit by the violent swing to value in the second half of the year. It tends to struggle in a such a rally - which is what we saw when state-owned banks and resources companies had a rally.

"There is only so far these stocks can go, arguably, and this fund also tends to catch up with the rest of the market, and go on to surpass it, as things calm down,” he said.

Woodford Equity Income

Renowned investor Neil Woodford has attracted £9.6bn of investor money to his Equity Income fund. However, the fund had a poor year last year. It returned just over 3pc compared to the 16.8pc return of the FTSE All Share over 2016, a year that saw the index hit an all-time high.

The fund is still trailing in early 2017, having returned 0.6pc in the year so far, compared to the FTSE All Share’s 2.4pc.

The management team behind the fund described 2016 as a “difficult year for the fund”, saying that many of the market moves over the past year are not based on fundamentals.

Fund manager Neil Woodford had a year of under-performance last year

The fund missed out on many of the gains in the oil, gas and mining sectors. It also had some notable fallers among its bigger names, such as Capita, which the team admitted was “a mistake to own ... over the last 12 months”.

However, Mr Khalaf said: “It would be foolish to write him off because of one bad year. To use a well-worn sporting analogy- form is temporary; class is permanent.

“One of the things we have seen from Neil Woodford over the many years he has been managing money is the market has a tendency to come round to his way of thinking, though while it is at odds with his view you do get periods of underperformance,” he added.

Premier Pan European Property

This fund invests in the shares of property companies. It aims to get exposure to the property market, but does not invest much in direct property, instead buying stocks that have exposure to that market.

The fund delivered a loss to investors in 2016, of 0.6pc. This compares to the fund’s index - the Global Property Research 250 European Capped index return of 0.2pc.

The property market was hit broadly following the EU vote, with many concerned about the outlook for the market and for housebuilders.

However, this fund’s ability to invest outside the UK should help its future prospects, although it still has 30pc of the fund in British property companies.

Mr McDermott said: “The fund was hit post Brexit when UK property took a turn for the worse. The manager is pretty bullish now though, especially in Germany. There is a structural growth story in Germany as it costs more to build a property than to buy it.”

Fund manager Alex Ross also thinks that the discounts that UK property investment trusts currently have are too extreme, giving him an opportunity to profit.

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