Interactive Investor has ejected five funds in its annual review of its ‘Super 60’ buy list, run in collaboration with Morningstar.
The booted funds were:
- – TM Crux European Special Situations,
- – IFSL Marlborough Multi Cap Growth,
- – Royal London UK Equity Income,
- – Mobius Investment Trust
- – Ishares Environment Low Carbon Tilt Real Estate Index Fund (UK).
Among the reasons for removal, Interactive Investor cited “recent missteps in the pursuit of high growth companies” as part of the decision to take the TM Crux strategy off the list, in spite of the management team’s extensive experience in analysing European companies.
Royal London’s fund was removed following the retirement of long-term fund manager Martin Cholwill, while significant turnover in the Mobius Investment Trust team led to its exit.
Dzmitry Lipski, Interactive Investor head of funds research, said: “Last year was difficult for investors to navigate and our Super 60 rated list, with its blend of adventurous, core, income, smaller company and low-cost options, was by no means immune. Nor would we expect it to be. The impact of geo-political tensions, rising volatility, bond market chaos, rising inflation and creeping interest rates has been indiscriminate.
“We won’t get it right all the time – least of all in exceptionally turbulent times, and that’s in part why we choose a blend of strategies, risk profiles and product types. But it’s important to be both transparent and long term in our approach. Over a five-year period, 77% of active selections outperformed peers, based on returns data from Morningstar to end of December 2022.”
Two of the top five strategies on the buy list were investment trusts, with City of London holding fourth place after returning 9.4% over the course of 2022. Murray International Trust placed second, behind Wisdomtree’s Enhanced Commodity ETF which took home top honours.
Meanwhile, Scottish Mortgage landed at the foot of the table after losing 45.7% over a one-year period.
Lipski added: “Of the top five performers of 2022 on Super 60, two of these were passive exchange traded products providing exposure to commodities. Wisdomtree Enhanced Commodity ETF rose off the back of elevated commodity prices. Ishares Physical Gold ETC also enjoyed the far more muted but net positive movements in the price of gold, with owners of the GBP denominated share class benefitting from the strengthening of the dollar through 2022.
“Murray International investment trust’s globally diversified portfolio delivered an impressive return to investors of nearly 21% through 2022, following some years of relative underperformance compared with peers.
“City of London also delivered investors a market return of just over 9% through 2022, but at the other end of the spectrum, four out of the five bottom performers were investment trusts, led by Scottish Mortgage. The reasons for Scottish Mortgage’s poor performance are well documented, not least its relatively high technology exposure versus peers. More broadly, many investment trusts use gearing to enhance returns.
“This has tended to help investment trusts produce stronger than average long-returns compared to funds. But over the shorter, more volatile periods, it can also enhance losses. So, it is important to take the rough with the smooth.”
Overall, 55% of actively-managed funds on the Super 60 list outperformed peers in 2022.
Additions
Three strategies were added to the list for the first time.
Janus Henderson’s European Selected Opportunities has been initiated into the Super 60 on the strength of its management team’s stockpicking capabilities.
Meanwhile, Fidelity Special Values IT made the list as an adventurous UK equities option.
Interactive Investor said: “The trust’s process looks to identify unloved companies that have the potential to recover based on factors such as a business model/corporate change or industry cycles. The manager may buy into such situations at an early stage which tends to result in a contrarian value biases. The trust has a thorough and well-defined contrarian value approach, which leads us to have a positive view on the fund’s investment process.
“We feel the fund is a strong option for investors seeking a contrarian and value orientated approach to investing across the market cap spectrum of the UK market.”
Artemis Income has been identified as an option in the core UK equity income category. The strategy, managed by Adrian Frost since 2002, aims to outperform the FTSE All Share over the long term while providing investors with a growing dividend yield.
Interactive Investor said: “The co-managers primarily hunt for companies with attractive free cash flow yields, with the goal of constructing a portfolio that generates cash flow in excess of the market. The team spend a significant amount of time appraising company management and believe that management’s ability to allocate capital efficiently is crucial.”
