UK smaller companies was one of the worst-performing sectors in 2022, and although the beginning of 2023 has hardly heralded a brighter economic outlook, Fundcalibre’s Darius McDermott has earmarked the Unicorn UK Smaller Companies fund as one to watch this year.
The IA UK Smaller Companies index is down 23.5% over the last year according to Trustnet, and though the Unicorn strategy bettered the index, its return was still -15%. However, McDermott (pictured) said the small, flexible strategy, which is managed by Simon Moon and Alex Game, has a solid investment process, and a highly competent team.
He added that its concentrated nature enables it to capture the performance from its best ideas.
Turning to another fund from another embattled sector, Axa Framlington Global Technology is an appealing option in McDermott’s view. The fund has undoubtedly taken a hammering over the last year, returning -24.5%, and underperforming the IA Technology and Technology Innovations index. However, despite some high-profile disappointments in 2022, McDermott retains faith in manager Jeremy Gleeson, and his “level-headed commitment” to finding new opportunities with strong commercial potential.
The challenging economic environment has been damaging for many strategies but the Polar Capital Global Insurance fund and Murray International Trust were two success stories, and McDermott has tipped them to build on their respective gains.
The ubiquity and importance of insurance ought to keep the Polar Capital strategy on solid footing according to McDermott, and he pointed out that its consistent track record offers a good return profile for portfolio diversification. Its 20.7% return last year is also a significant cause for optimism.
As for the Murray International Trust, which posted similar returns in 2022, McDermott favoured its focus on defensive business, where retaining both earnings and dividends is possible without paying over the odds. The trust also appeared on the Association of Investment Companies’ most-viewed investment companies of 2022.
The higher yield environment, and the attractive fixed income returns that it might bring about, could herald a better year for fixed income in 2023. In this space, McDermott highlighted the Blackrock Corporate Bond and Nomura Global Dynamic Bond funds as possible beneficiaries of this trend.
The Blackrock strategy invests predominantly in investment grade corporate debt, and though it returned -16.5% in 2022, McDermott said its flexible mandate, experienced lead decision-maker Ben Edwards, and Blackrock’s enormous resources make it one to watch.
The value of Nomura’s fund also lies in its manager, according to McDermott: “Dickie Hodges […] is incredibly knowledgeable about bond securities and derivatives and uses this skillset and a flexible mandate, to exploit opportunities.”
