ISA ideas 2019

Posted by Adrian Lowcock in Press releases category on 13 Feb 19

  • Fund picks include Merian UK Mid Cap, Man GLG Japan Core Alpha and Lazard Emerging Markets
The UK, Japan and emerging markets are three attractive themes for investors to consider in the current ISA season, according to Adrian Lowcock, Head of Personal Investing at Willis Owen, the online investment service provider.

Funds that Adrian would recommend as investments in these themes include the Merian UK Mid Cap, Man GLG Japan Core Alpha and Lazard Emerging Markets funds.

Adrian Lowcock believes all three markets now look cheap but have the potential to deliver strong performance going forwards. His views and fund picks are detailed below:

UK – A Brexit bounce

The UK is getting closer to the 29th March Brexit deadline and international investors have taken the decision to wait until there is more clarification on what it will look like. Consequently, parts of the UK market have become cheap and look attractive.

It is extremely difficult to predict what Brexit will look like and there is plenty of potential for more market wobbles in the short term. But in the longer term, companies tend to find ways to adapt and make profits, especially the good ones.

Merian UK Mid Cap Fund – Manager Richard Watts is a core member of the Merian UK team and uses its economic outlook as an integral part of the fund's strategy.  This allows him to position the portfolio according to prevailing economic and market conditions. Watts then looks to invest in companies that demonstrate some of the following characteristics: the ability to grow earnings faster than the market average for an extended period; the scope to generate positive surprises; or the potential to be re-rated relative to the market. He is pragmatic about stock valuations, using various ratios and timescales, depending on the wider context. Watts then assesses the relative attractiveness of individual names, based on likely outcomes. Watts is aware of his performance benchmark but is clearly willing to back his convictions.

Valuations look good in Japan

Japan’s main stock market index, The Topix, is up 99% has performed well since Shinzo Abe’s appointment as prime minister in 2012, significantly outstripping the MSCI World index. This performance has been driven by companies’ earnings growth. Despite the rise, Japanese equities still look remarkably cheap. Some observers claim valuations are even the cheapest they have been in a decade. Japan offers a lot of growth at a reasonable price and the recent trade deal with the EU will help further.

The country is still reforming under Abe. Improved corporate governance has spurred healthy growth in pay-outs and more companies are including dividend targets in their medium-term plans. Reforms in employment law has introduced more women into the workforce, boosting household incomes. Japan has an abundance of interesting and unique investment opportunities, with themes ranging across automation, robotics, healthcare and artificial intelligence.

Man GLG Japan Core Alpha Fund – Manager Stephen Harker is a contrarian value investor, looking for companies that are out of favour with investors. He focuses on the largest 300 listed companies in Japan and looks for those companies that look undervalued versus their rivals. He identifies such companies using valuation metrics including Price to Book, Dividend Yield and the Price/Earnings ratio.  He selects companies with strong fundamentals and managers that he believes could drive performance turnarounds. Harker uses a rigorous, repeatable process that draws on the team's extensive knowledge of the Japanese market. With a clear focus on value, a long-term investment horizon and no consideration for the benchmark, the fund is certainly an alternative to the mainstream.

Emerging Markets are down but not out

Emerging markets were battered in 2018 as the combined headwinds of a strong US dollar, reversal of quantitative easing, the US-China trade war and slowing global growth impacted them. However, much of that negativity has now been factored into the market and once again valuations look attractive. Any resolution in the trade war will be positively received by markets, especially those closest to China, while the global economy is expected to continue to grow, just at lower levels. 

Lazard Emerging Markets Fund – Manager James Donald taps into Lazard's deep pool of analytical resources, which focus on firms with improving financial productivity that have been overlooked by the market. Initially, a range of valuation metrics are used to filter the universe of available stocks. Analysts then research companies in more detail to understand the drivers of profitability, paying particular attention to cashflows’ impact on balance sheets and shareholder value. Macroeconomic, political, environmental, social and governance factors are all included in Lazard’s conservative valuation calculations.