50 Investment Opportunities After Triggering of Article 50

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As Article 50 has finally been triggered, Michelle McGrade, Chief Investment Officer at TD Direct Investing, talks Finance Monthly through the key areas investors should consider, and answer a question many investors are thinking: ‘What are the investment opportunities open to me in a post-Brexit world?’

Following the UK’s vote to Brexit, our customers over at TD Direct Investing told us their biggest concern was how the UK Government would manage to implement its plans to trigger Article 50. And, more recently, we have seen increased uncertainty about what Brexit will actually mean, with approx. 40% saying they don’t know what impact it will have on their investments.

Here I’ve focused on six key areas I believe you should consider – and bring you 50 Investment Opportunities for Article 50.

In addition to our Best of British Fund Managers list, which highlights the 25 funds that have consistently performed over the past decade, we focused on some key topic areas: Disruption, European Recovery, Global Income, Small Caps, Contrarian and Sustainability.

Sector opportunity #1: Disruption

Politics are certainly disrupting the status quo around the world right now, but the wider theme of disruption is having a more profound impact on every aspect of our lives. Central to this is technology; a constant driver of new, and often simplified, ways in which we live.  According to a recent poll we conducted on our dedicated Article 50 hub, 57% of the 324 respondents believe that Britain has the ability to stand alone as a hub of innovation.

Sector opportunity #2: European recovery

65% of people who responded to a recent TD poll believed Europe has been wounded by the populist movement. However, I think the European economy is actually on a positive road to recovery with a selection of investment opportunities. What we’ve learnt from Brexit is that no one knows how key political events are going to turn out, and what the stock markets’ reaction to those events will be. As investors, it is better to stick to what you do know and focus on a long-term investment horizon.

Sector opportunity #3: Global Income

Article 50 has been triggered, but does that mean we should start looking abroad for investment opportunities? In another one of our surveys, 57% of respondents agree with my belief that independent trade deals between Britain and other areas around the world are highly likely – therefore, looking beyond our own shores, there are a number opportunities from around the world.

Sector opportunity #4: Small Cap Recovery

The quicker a company can grow its earnings in a sustainable way the more attractive it is to investors. UK smaller company shares have delivered better total returns than larger companies over more than 60 years.  You can think of small-cap investing in the same way as parenting. When the companies are at a very early stage, they are problematic. Likewise, any parent will tell you the ‘terrible twos’ is a difficult time. And once companies get too big, they are then teenagers, becoming potentially hard to manage. But in between these two phases is potentially a sweet-spot for parents and investors alike.

Sector opportunity #5: Sustainability

With events such as the UK’s vote to leave the European Union taking centre stage and leading to market uncertainty and volatility, it is worth noting there are still long-term, structural themes which can benefit investors. Sustainability is one such theme. It is becoming ever more important not just because of its significance in environmental terms, but because companies which adopt a sustainable business model are also outperforming those which don’t.

Sector opportunity #6: Contrarian

Sometimes opportunities arise in the basic act of going against the prevailing sentiment – when a fund is unloved or has, let’s say been out of fashion.

Other opportunities: Best of British Fund Managers

A lot has happened in the markets over the last 10 years; the global financial crisis, the price of Brent crude oil falling to its lowest point since 2003, and more recently the EU referendum and the drop in sterling.

Despite the volatile market conditions – and headlines – some fund managers have truly earned their stripes. Our Best of British research, now in its third year, identifies the top 25 UK fund managers who have consistently outperformed their benchmark and sector average over the last decade.

There is some crossover between Britain’s Top 25 fund managers and the above categories, including MFM Slater, Royal London UK Equity Income and Kames Ethical Equity, who would all appear in both lists – double the credit for their potential.

Opportunity Aim of the fund
DISRUPTION
1 Henderson Global Technology To aim to provide capital growth by investing in companies worldwide that derive, or are expected to derive, profits from technology.
2 Baillie Gifford International The Fund aims to produce attractive returns over the long term by investing principally in companies worldwide, excluding the United Kingdom.
3 Polar Capital Global Insurance To achieve capital growth through investment in companies operating in the international insurance sector.
EUROPEAN RECOVERY
4 Henderson European Selected Opportunities The fund aims to provide long-term capital growth by investing in European company shares.
5 Old Mutual Europe (ex UK) Smaller Companies The aim is to achieve long term capital growth through investing primarily in an equity portfolio of smaller companies incorporated in Europe (ex UK) or incorporated outside of Europe (ex UK) which have a predominant proportion of their assets and/or business operations in Europe (ex UK).
6 BlackRock Continental European Income The aim is to achieve an above average income from its equity investments, compared to the income yield of European equity markets (excluding the UK), without sacrificing long term capital growth.
7 Jupiter European Special Situations The Fund’s investment policy is to attain the objective by investing principally in European equities, in investments considered by the manager to be undervalued.
GLOBAL INCOME
8 Artemis Global Income The fund aims to achieve a rising income combined with capital growth from a wide range of investments. The fund will mainly invest in global equities but may have exposures to fixed interest securities.
9 Fidelity Money Builder Fund Manager Ian Spreadbury has gained valuable perspective through his long tenure at Fidelity, his 10 prior years at L&G, and his earlier actuarial career. Having built the team at Fidelity in the 1990s, he is able to get the most out of the analyst team. He also designed the investment process, which remains in place.
10 Veritas Global Equity Income The investment objective of the fund is to provide a high and growing level of income and thereafter to preserve capital in real terms over the long term.
11 Royal London UK Equity Income The investment objective and policy of the Fund is to achieve a combination of income and some capital growth by investing mainly in UK higher yielding and other equities, as well as convertible stocks. (No. 11 in TD’s 2017 Best of British list)
12 Threadneedle UK Equity Income The fund seeks to achieve an above average rate of income combined with sound prospects for capital growth. The ACD’s investment policy is to invest the assets of the Fund primarily in UK equities.
13 Schroder Income The fund aims to provide income. At least 80% of the fund will be invested in shares of UK companies. The fund aims to provide an income in excess of 110% of the FTSE All Share index yield.
14 JPM Emerging Markets Income The fund seeks to provide a portfolio designed to achieve income by investing primarily in Equity and Equity-Linked Securities of Emerging Markets companies in any economic sector whilst participating in long-term capital growth.
15 Schroder Asian Income The Fund’s investment objective is to provide a growing income and capital growth for Investors over the long term primarily through investment in equity and equity-related securities of Asian companies which offer attractive yields and growing dividend payments.
16 First State Global Listed Infrastructure The Fund invests in a diversified portfolio of listed infrastructure and infrastructure related securities from around the world.
17 L&G UK Property The objective of this fund is to provide a combination of income and growth by investing solely in the Legal & General UK Property Fund (the ‘Master Fund’). It may also hold cash where necessary to enable the making of payments to unitholders or creditors.
18 Fidelity Strategic Bond The fund invests in a portfolio primarily of sterling denominated (or hedged back to sterling) fixed interest securities. Derivatives and forward transactions may also be used for investment purposes.
19 CF Woodford Income Focus Fund A new fund from Neil Woodford launched 20th March 2017 is proving popular with our customers. Developed to meet investor demand for a fund offering a higher level of income and follows the launch of the CF Woodford Equity Income Fund, in June 2014, and the Woodford Patient Capital Trust in April of the following year.
SMALL CAP RECOVERY
20 Liontrust UK Smaller Companies Fund The investment objective of the Fund is to provide long-term capital growth by investing primarily in smaller UK companies displaying a high degree of Intellectual Capital and employee motivation through equity ownership in their business model.
21 MFM Slater Growth The investment objective of the Scheme is to achieve capital growth. The Scheme will invest in companies both in the UK and overseas but concentrating mainly on UK shares. (No1 in TD’s 2017 Best of British list)
22 Legg Mason IF Royce US Smaller Companies Fund The Fund’s investment objective is to generate long-term capital appreciation. The Fund invests at least 70 per cent of its Total Asset Value in common stocks of US Companies.
23 Franklin UK Mid Cap Fund The fund will primarily invest in the equity securities of UK companies listed in the FTSE 250 Index.
SUSTAINABILITY
24 WHEB Sustainability The aim of the Fund is to achieve capital growth over the medium to longer term. The Fund will invest predominantly in global equities and in particular will invest in such equities in those sectors identified by the investment manager as providing solutions to the challenges of sustainability.
25 Kames Ethical Equity The investment objective is to maximise total return. The fund invests in equities and equity type securities in companies based in the UK, principally conducting business in the UK or listed on the UK stock market which meets the Fund’s predefined ethical criteria. (No. 19 in TD’s 2017 Best of British list)
26 Royal London Sustainable Leaders The fund seeks to provide above-average capital growth through investment in companies that have a positive effect on the environment, human welfare and quality of life. (No 24 in TD’s 2017 Best of British list)
EMERGING MARKETS
27 M&G Global Emerging Markets At M&G, fund manager Matthew Vaight likes investing in cheaper companies and is encouraged by their improving capital management trend. Plus, emerging markets help to diversify  investment is a good portfolio diversifier.
CONTRARIAN
28 Man GLG Undervalued Assets Henry Dixon buys companies that are cheap, have been forgotten by the markets and have a promising upside. He has a disciplined approach and conducts thorough analysis of company balance sheets to understand the company’s assets and liabilities.
29 Guinness Global Energy The portfolio is concentrated, with only 30 names in it and is managed by a highly experienced and dedicated team of three: Wil Riley, Jonathan Waghorn and Tim Guinness.
BEST OF BRITISH
N.B. The following descriptions are focused on the fund managers who featured in TD’s Top 25 Best of British list
30 CF Lindsell Train UK Equity Nick Train is a highly experienced manager. His process is differentiated and has proved successful over a number of market cycles. Train seeks companies with unique and strong franchises which can prosper through a number of business cycles. Turnover is very low, with positions only sold if the managers no longer consider a company to be of sufficient quality.
31 Liontrust Special Situations Cross has a wealth of experience investing in small-cap companies and has been supported by Julian Fosh since May 2008. His process focuses on the importance of intangible assets and how key employees are motivated and retained. The fund has large active positions, and therefore tends to have a very different performance profile to the benchmark and its peer group.
32 Majedie UK Equity The fund is structured into four sub-portfolios; three large cap and one small cap, with each manager given the freedom to run their sub-portfolio as they deem appropriate. The common philosophy is the desire to be pragmatic and flexible. The fund has delivered consistent returns across different market environments with relatively low volatility.
33 Schroder UK Dynamic Smaller Companies Paul Marriage has generated substantial outperformance in different market conditions since taking control of this fund in 2006, though he has proved particularly effective during falling markets. Marriage seeks companies that offer differentiated products, are leaders within niche markets, exhibit margin growth, and have high-quality management. While the fund’s core holdings will fit these criteria, he can also invest in companies on a shorter-term view, aiming to take advantage of value opportunities.
34 Troy Trojan Income Troy has a culture based on capital preservation, strong risk-adjusted returns, and steady long-term capital and income growth. Brooke has been consistent in his approach through market conditions both favourable and unfavourable to his style. The fund is a relatively concentrated portfolio of quality companies which have to meet strict criteria before being considered for investment.
35 Schroder Recovery Kirrage and Murphy have demonstrated a strong working relationship and shared a sound investment philosophy since taking over the management of this fund in July 2006. They employ a deep value approach to investing in recovery or special situations, seeking to identify unloved companies that are trading at a discount to their fair value but have good long-term prospects. While their deep value style does lead to shorter periods of underperformance, their core discipline of buying cheap stocks gives good long-term outperformance.
36 SLI UK Smaller Companies Having run this fund since its launch in 1997, Nimmo is a highly experienced small-cap investor. While his process has led to strong long-term performance, the fund’s quality growth tilt, with valuation a secondary consideration, can at times cause performance issues.
37 JOHCM UK Opportunities Wood has more than 25 years’ investment experience and has stuck to his investment approach through multiple market cycles. The portfolio features stocks across the equity style spectrum, and Wood’s willingness to sell aggressively, and his bias towards quality stocks, have helped the fund in the long term.
38 Jupiter UK Special Situations Whitmore’s approach reflects his genuinely contrarian and value-oriented investment philosophy. He looks for companies that are intrinsically undervalued but are nevertheless well-run and have sound balance sheets. Whitmore has proved an astute investor over the years, with a clear ability to select stocks in a dispassionate and disciplined fashion. He has shown the courage of his convictions in constructing the portfolio, which can look quite different to the benchmark, including high levels of cash (typically 10%) when he feels there are insufficient opportunities.
39 Schroder UK Alpha Income Hudson has run the fund since its launch in 2005. He positions the fund in line with where he feels the market is in the business cycle. This is reflected in a weighting to seven different buckets: commodity cyclicals, consumer cyclicals, industrial cyclicals, growth, financials, growth defensives and value defensives.
40 Old Mutual UK Smaller Companies Nickolls is an experienced small-cap investor who benefits from the input of the wider Old Mutual team, including Richard Buxton. He seeks companies for the fund that have the ability to grow earnings faster than average over time, the scope to generate a positive surprise, or the potential to be re-rated relative to the market.
41 IP UK Strategic Income Barnett has managed the fund since January 2006 and is a skilled UK equity investor. He has a long-term focus and a contrarian style, mixing a high-level macro view with bottom-up stock picking, and copes well with the large amount of assets he is responsible for.
42 CF Woodford Equity Income Woodford is one of the UK’s most experienced equity income managers. The fund aims to deliver a positive capital return while growing income, and Woodford has proved willing to stick to his strategy even during periods of poor performance.
43 Investec UK Special Situations Mundy is a seasoned and talented manager who has achieved considerable success across a variety of market conditions. He has a deep value, contrarian approach, seeking companies whose share prices have fallen at least 50% relative to the market. Mundy also places importance on dividend yield, which has helped reduce volatility of returns.
44 Old Mutual UK Alpha Buxton is a hugely talented UK equity manager with many years’ experience. His established and proven process combines stock-level analysis with top-down insights, taking a long-term approach to identifying undervalued companies often with a contrarian angle. His approach typically leads to outperformance in rising markets but lags in falling markets.
45 AXA Framlington UK Select Opportunities Thomas is one of the market’s most experienced and talented managers. His investment philosophy emphasises diversification via a multi-cap approach, with a focus on medium and smaller companies. The long-term, high-conviction approach can lead the fund’s performance to differ significantly from its peers.
46 Artemis Income Adrian Frost continues to run this fund. With its considerable size, the fund tends not to have the flexibility to invest further down the cap scale, unlike many peers. Gosden left the group at the end of June 2016, but Frost has committed to at least three more years on the fund and the group plans to recruit an experienced manager as a replacement.
47 Liontrust Macro Equity Income Bailey’s understanding of the equity market and company analysis dovetails with Luthman’s macro views and insights. A focus on certain parts of the market via themes can lead the fund to have significant active positions at a sector level. The team has shown it can add value through both top-down economic themes and stock selection.
48 JOHCM UK Growth Costar uses a clear, well-executed process which he has used throughout his career. His analysis is focused on what drives a share price and he attempts to determine what is already priced in and what is yet to be recognised. Given his distinctive style performance can be volatile, but the fund has a strong long-term cumulative performance record.
49 Schroder UK Smaller Companies Brough seeks to build the core of the portfolio around companies operating in areas of secular growth with strong business franchises. A smaller allocation is made to firms that may benefit from a cyclical upturn or rerating. The fund invests lower down the market-cap scale than many of its peers. The fund’s long-term performance remains solid relative to the benchmark index and peers.
50 Artemis UK Special Situations A highly experienced manager, Stuart runs the fund with a small- and mid-cap bias, seeking companies which are unloved or undervalued, or undergoing change. Stuart has managed the fund since 2000 and has demonstrated the ability to add value in a variety of market conditions, although performance can be volatile.

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