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Coronavirus crisis: Three funds caught up in the sell-off to buy for the long-term

Posted by Adrian Lowcock in Press releases category on 06 Apr 20

The dramatic falls seen across equity markets are creating opportunities for bargain hunters with a long-term investment horizon, according to Willis Owen.

Equity markets have routed around the globe in the wake of the coronavirus, with shares back at multi-year lows after some of the largest falls on record.

As well as being keenly felt in stock markets, the falls have severely impacted some of the most popular investment funds.

The latest IA statistics show that the UK All Companies sector, for example, is down 22.63% over the past month*. However, these extreme moves are creating long-term opportunities for investors, says Adrian Lowcock, head of personal investing at Willis Owen.

“This has been a truly torrid time to be an investor, whether you are an individual or a fund manager,” Lowcock says.

“The scale of the uncertainty has spooked investors and prompted a flight to safety en masse, with trillions of pounds moving out of equity markets and into a few select assets deemed less risky.

“Fund managers focused on buying equities have been caught up in this, and some of the biggest names in the industry have suffered sharp losses, no doubt prompting investors to reassess their positions.”

However, for those looking out over the next five years or more, such a dramatic slump has created a real opportunity to invest in some of the most successful fund managers who have, over the long-term, delivered returns in excess of the market.

“As with any major market event, the good often gets thrown out with the bad, and we have seen that in evidence in the last few weeks,” Lowcock said.

“It means there are some truly eye-catching funds holding stocks which are simply valued far too cheaply, and with ISA season here, now could be the time to invest.”

Below Lowcock identifies three funds he is backing over the long-term following the dramatic events in markets.

Discounted funds – three cheap portfolios investors can hold for the long-term (Adrian to provide three funds)

Merian UK Smaller Companies – Smaller companies have suffered significantly during the coronavirus crisis as investors look to reduce risk. Whilst the sector may struggle in the short and medium-term, the sell-off provides opportunities which manager Dan Nickols can take advantage of. He looks for smaller companies that can demonstrate one of the following: the ability to grow earnings faster than the market average for an extended period; the scope to generate a positive surprise, or the potential to be re-rated relative to the market. The team take a pragmatic approach to valuations, with various ratios and timescales used depending upon the opportunity. This flexible approach allows growth, value and recovery companies to be considered although the portfolio has tended to have a tilt to growth.

Man GLG UK Income – This fund offers a highly disciplined approach to investing in UK equity income. Manager Henry Dixon's value style underpins his philosophy that pricing inefficiencies can be profitably exploited. He targets companies trading below his team’s estimate of asset value or those where the company’s profit stream is undervalued relative to the cost of capital, with the additional caveat of a dividend yield of at least equal to the UK stock market. The fund also looks for strong free cash flow and net cash positions that may produce positive dividend surprises. As well as the primary focus on valuation, the manager also seeks elements of quality and positive earnings momentum. This should help protect the portfolio for the worst of the dividend cuts and the value focus means the fund could bounce back after the crisis passes.

Schroder US Midcap - Robert Kaynor is a cautious investor and views avoiding losses as the most effective way to grow capital over the long-term. This approach will cause the fund to lag during strong bull markets but should deliver over time. Companies are chosen based on an analysis of their business model, valuations and their financial statements. The fund invests into three types of stocks; mispriced growth, where the current share price doesn't reflect the potential growth. Steady Eddies; companies with stable growth and earnings, and turnarounds - recovery stocks with low or negative growth but where change is occurring.

*Source: FE Analytics 5th March to 5th April Total Return in pounds sterling.