These are Neil Woodford’s Invesco Income, Graham French’s M&G Global Basics and Angus Tulloch’s First State Asia Pacific funds.
Going forward, the firm has already set about picking new 'stars' for its fund list. It emphasises an approach towards recovery in the UK equity income sector, while a deep value approach is favoured in global equities. In Asia, the firm plans to go ahead with a renewed focus on cyclical companies.
Long-term Asia view
The latest of the group to relinquish its “buy” label is the First State Asia Pacific Fund, which has been a cornerstone of the firm’s emerging markets equity allocations of the past decade.
“Our view is that the process and the philosophy of the team are now less suitable for the market environment that we forecast,” Becket said.
Never before have economically-sensitive stocks traded at such a discount to the wider market and this is where long term investors should be focussing. Therefore investors, who believe in the long-term economic future of Asia, should sell defensive equities in the region and buy cyclical exposure.
“We also harbour concerns about the size of First State's EM franchise and wonder whether their and Aberdeen's mutual success in raising assets has led to a positive feedback loop for their common stocks, aiding performance and driving such company valuations to expensive levels,” Becket added.
Invesco income
The departure of Woodford brought concerns about the potential performance impacts that his departure might bring, due to illiquidity issues from his behemoth funds. The ultimate decision was based upon valuations, but Woodford's scheduled departure accelerated the decision.
“I said at the time that this was 'the wrong fund at the wrong time in the wrong situation' and stand by those views today,” Becket commented.
Consumer curve
It was also the announcement of a manager changed that triggered the firm’s selling of M&G Global Basics fund, where the retirement plans of Graham French came as a disappointment.
“With French, we were unified in his view of the 'consumerisation curve' of the emerging markets and the progression from an insatiable appetite for resources to the desire of the emerging middle class to buy and use the same brands as the citizens of the developed world,” Becket said.
The past few years of French’s reign were highly challenging, as the emerging market theme fell heavily from favour and his geological expertise counted for nothing in a world that shunned mining sector risk. However, these final few years of underperformance were attributable to the fact that French’s two decade theme came true in the five years to 2008.
Looking ahead
In the UK equity income sector, the Schroder Income fund is a candidate in the running for the buy list.
“We believe that the equity recovery and high quality barbell approach of Nick Kirrage and Kevin Murphy at Schroders will drive good performance,” Becket said.
The deep value approach of Hugh Sergeant at River and Mercantile could be ideally suited to markets with under-estimated countries and sectors.
Meanwhile in Asia, Andrew Swan of BlackRock has been favoured for his balanced approach and renewed focus upon cyclical companies to power returns in the years ahead.
“We have great confidence in these managers, they will have to fulfil all of our expectations,” Becket added.
