The managers detail their bet to start now to build a diversified fund portfolio and reap benefits in three years.
These days it is very easy to echo the thousands of investment recommendations that experts suggest. The difficult thing is to opt for one that resists volatility in recent weeks.
If the time has come to unload the ammunition, is it better to be selective or to expose yourself to the market? Stocks or bonds? Betting on punished sectors or those that best resist? Some of the recommendations that seem most obvious are fairly repeated. And yes, the easiest thing is to group them into funds.
EXPANSIÓN has consulted several investment fund selectors to choose their favorite products, in which to invest now and start to see results in the medium term, for example, three years.
There is unanimity on this. Experts recommend avoiding sectors that are expected to suffer the greatest impact in the long term. Just the opposite: invest in funds that follow trends that are going to be the next winners in the medium term.
In this sense, fund managers work to identify which companies will emerge stronger from this period. And there are two clear winners. Technology companies -this includes companies that make teleworking more flexible, home delivery companies, telecommunications providers-, and the health sector.
The latter seems to be undoubtedly the great beneficiary of this (health) crisis. Furthermore, the growth in the demand for health-related services will continue to rise regardless of the economic context, due to demographic evolution.
Precisely at Atl Capital they have tactically increased their exposure to trends like this “because we believe they will be the next medium-term winners”, and within this “from Asian countries”, says Beatriz Hernández, fund analyst at Atl Capital . Bet on him BB Asia Pacific Healthcare that offers defensive access to this sector. Although the United States continues to capture the majority of its portfolio, it currently has a great weight in China, which despite the drop in its growth is the market that is attracting the most flows once the worst effects of the coronavirus have passed. This year it earns 3% and 11% annualized to three years. Among its top positions are MicroPort Scientific, Vertex Pharmaceutical and Cigna.
Among the recommended high-trend funds, other products such as Cosmos Equity Trends. This fund invests in global equities looking for trends at all times that have a relevant economic impact. Artificial intelligence, process automation, digitization, population aging or security are some of the topics on which you focus your investment. In addition, this product has performed better than others in its class in recent years. This year it loses 8.6%.
The other big bet is the technology sector. The Franklin Global Technology or the Janus Henderson Global Technology are the recommendations of Patricia Justo, director of A&G Fund Selection: “The reasonable prices the sector has remained make it an attractive investment opportunity to build a portfolio for the future.” Neither fund focuses its investment on a technology subsector. The funds that invest in large technology companies are the ones that behave best in this crisis.
‘Value’ vs ‘growth’
For many investors, following one style or another of management is almost a matter of faith. For those who do not, and are struggling between incorporating funds invested primarily in quality companies into their portfolio or relying on the rebound capacity of some of the companies hardest hit by the markets, this can be helpful.
While some are confident that, this time, the recovery of the economy may coincide with the revival of value, most believe that it is time, more than ever, to bet on funds that invest in quality, solid companies, and that don’t depend too much on the cycle.
It is curious that the market consensus expects that it will be the quality companies that do it best when the market hits the ground. Despite the fact that in previous soils cyclicals have been the protagonists.
César Ozaeta, director of Abante’s Investment Funds Analysis, suggests a couple of global stock funds, which are committed to solvent companies with recurring profits, such as the Morgan Stanley Global Brand and the Capital Group New Perspective; and another focused on US equities, the Vontobel US Equity. “We prefer to pay a higher multiple for something that we know is good and will endure the trance in a recovery that will be pogressive and slow,” says Ozaeta.
Atl’s Hernández believes there may be opportunities in both value and growth stocks: “We try to have a little bit of everything because there are always good opportunities and more in declines like the ones we are experiencing. But right now we are not including pure value funds.”
There are options in equities that try to combine the two styles. And it is the favorite option of Ion Zulueta, head of Fund Selection at Arcano Partners, who recommends the fund Memnon European Equity Fund managed by Zadig AM. “Compared to the benchmark index, factor and style risk is very limited, which saves investors from having to make the difficult decision about investing in one or the other,” he explains.
According to Morningstar, the best fund invested in growth this year gains 4.42%. Is he BNP Paribas Funds Euro Defensive Equity . Contrast with the 7% who win the best value in 2020, the Schroder International Selection Fund European Value.
The Achilles heel of this crisis is, according to fund managers, the default risk faced by many companies hit by the strong economic shock.
Despite the fact that central banks have acted, the future is still uncertain about the bond market. Therefore, the selectors agree in recommending to their clients funds that they follow active management when investing in fixed income. From Abante recommend the FVS Bond Opportunities and the Lazar Crédit FI.
The first of these, managed by the German Flossbach von Storch, lost just 0.4% in the year and gained more than 3% in three and five years. On the climbs, it has behaved more or less the same as others in the same category, but it has done better on the descents. This fund, which invests in corporate and European government debt, allows managers to delegate the allocation by type of debt and the assumption of less or greater risk depending on opportunities. That is, they started the year very defensively and now they have placed the liquidity they had in companies with high rankings. Managers will reallocate debt with higher risk as opportunities arise.
Lazard’s fund bets on financial subordinated debt. “We see that the bank is in a reasonably good state from the point of view of debt quality, and this fund that invests in champion banks can offer very interesting yields to maturity,” says Ozaeta. It falls 8% in 2020, according to Morningstar.
For more conservative clients, in a medium-term horizon experts recommend the Muzinich Enhanced Yield. It is a short-term fund that invests at least 60% of the portfolio in high-quality bonds. It is a global fund and can invest up to 20% in emerging fixed income and will not exceed 40% of high yield. Muzinich is a specialist fixed income manager and the fund has a solid track record. It invests in almost 500 bonds from more than 280 different issuers, making it highly diversified.
From atl, they also recommend the older brother of this fund, for those who want to take a little more risk in fixed income. “We recommend Muzinich Europe Yield, it invests in high yield and is highly diversified by number of issuers and markets, which gives us greater peace of mind within this asset,” suggests Hernández.
Like the latter, for the next three years, Arcano is inclined to start entering funds invested in high yield bonds. Zulueta believes that the price of these assets “has already discounted a very negative scenario. Especially considering the support that governments are providing to companies.”
This firm also advises its investors to look at merger arbitrage funds. “The widening of spreads in announced merger and acquisition operations has been greater than even in 2008,” says the head of Fund Selection. He leans for the Helium Performance, within this strategy. This product from the manager Syquant, has a defensive approach because it focuses on advanced operations (late stage) in which the available profitability is lower, but so is the risk.
It is the eternal debate in investment funds. And it gains strength at times like today. In the face of widespread declines, is it better to expose yourself fully to the market or to be selective? That is, to acquire indexed or actively managed funds?
“In markets such as the American one, which is very efficient, it is difficult to find managers with similar numbers (not higher) than the index,” agree the experts, who recommend a battery of indexes or ETFs exposed to the powerful US selective. The Vanguard US 500 Stock Index or the iShares US Index are some examples.
Beyond large indices, companies like Arcano advise using ETFs to take advantage of opportunities in much more specific segments.
Zulueta sees attractiveness in assets linked to inflation, such as gold. “We think that the record levels of monetary and fiscal stimuli, together with other factors such as the supply shock derived from this crisis, may end up leading to inflation levels above the targets set by the central banks,” he details. An obvious hedge against inflation is precisely gold. Although the catalog of listed funds invested in the precious metal is more than extensive, his recommendation is the Swisscanto ETF Precious Metals Physical Gold Euror. Invest in physical gold and you can invest in a Euro share class that covers the dollar.
Equity funds actively seeking companies offering recurring dividends have become an opportunity in recent years for conservative investors who wanted to make the move to equities, but without taking too much risk. Until the arrival of the coronavirus.
Many companies have announced that they will cut or eliminate their dividends in the short term, and depending on the effects of the pandemic on their results.
This type of funds can continue to be an opportunity for the long term if you want to follow the same strategy. Coming to land at a turning point, because funds focused on dividend distribution may be meat of short-term repayments, some managers have taken a sharp turn at the wheel, looking for alternatives.
As in the rest of stock market funds, the key is to analyze whether companies are in sectors that will suffer for a long time, or vice versa. If the recovery is rapid (in V), companies that have suspended dividends could re-distribute it in the short term. And if the crisis is more serious than it seems, the suspension of the dividend will be widespread in more sectors. This scenario would give some advantage to companies that have canceled first.
Few Spanish managers follow this strategy, but funds such as the GVC Gaesco Dividend Focus They limit losses by up to nine percentage points below their benchmark.