The best fund for 2020

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The best fund for 2020
Master Investor Magazine

Master Investor Magazine Issue 57

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The decisive Conservative victory has resolved a lot of the uncertainty over Brexit, and with value stocks coming back into fashion it could be the perfect time to buy a high yielding UK value fund.

Business investment in this country has been severely curtailed since the June 2016 EU referendum, with companies unwilling to commit until there was greater clarity about what the future would hold. It is likely that these funds will now start to be deployed ahead of a possible trade deal, although I expect there to be a lot of political wrangling to avoid the cliff edge of a hard Brexit at the end of 2020.

The UK stock market is cheap compared to many of the other developed markets and this should encourage foreign investors to snap up domestically-listed shares as their prices continue to recover. It is also cheap relative to bonds, which should see some of the retail investors who have deserted the sector come back in.

I personally think that the best way to benefit would be to invest in a UK value fund that pays a decent yield. It has been a difficult period for value managers, with the historically low interest rates favouring their growth counterparts and bond proxies, but there are signs that this is now beginning to change.

Value could quickly come back into vogue

The underperformance of value stocks since the financial crisis has been astronomical, yet if the heavily followed growth names fail to achieve the high baked-in estimates of future earnings then value could quickly come back into vogue. After all, where else can you find blue chip stocks that yield five percent or more with the prospect of a decent capital gain?

There are several UK investment trusts and open-ended funds with a value bias, but if there was a rotation back into this style of investing a prime beneficiary would be Man GLG UK Income. 

Manager Henry Dixon takes a multi-cap approach with the large, mid and small cap portfolio that he has put together currently yielding over five percent with monthly dividends. This makes it a good option for income investors and the undervalued nature of the holdings should also appeal to those who are more interested in capital growth.

Actively managed portfolio

At the end of November, the £1.3bn fund was invested in 65 different holdings with the largest overweights relative to the index being Imperial Brands, International Consolidated Airways, easyJet, QinetiQ and Legal & General. The main underweights were Astrazeneca, HSBC, Diageo, Unilever and Vodafone.

It is interesting to note that despite value being out of favour, over the five years to the end of November the fund returned 63% compared to the 37% increase in the FTSE All-Share. This outperformance has accelerated in the last three months, with the rise of 10.24% for the fund being well ahead of the 3.79% achieved by its benchmark.

Investors in Man GLG UK Income will receive a healthy dividend yield in excess of five percent and should also benefit from a decent capital gain if the UK stock market continues to recover as the Brexit uncertainty is gradually resolved. With global equity returns likely to be more modest than in 2019, it should be a good option for the year ahead.

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