Three bold contrarian funds

published 11 June 2013

Each week, a professional investortells MoneyWeekwhere he'd put hismoney now.This week:Rob Gleeson,head of research,FE Trustnet.

When selecting funds for our portfolios, we look for managers who have a clear investment strategy that they stick with through thick and thin, even when the market moves against them. By building portfolios of funds with contrasting strategies, run by managers we can trust to stand by their convictions, we can better diversify our portfolios, blend away risk, and create better risk-adjusted returns. We like the following funds, whose styles are distinctive and, arguably, currently out of favour.

JM Finn Global Opportunities is quite a volatile fund that has made big gains when the world economy advances by investing in companies that are involved in global cross-border trade. Although it is in the Investment Management Association's Global sector, it has significant exposure to emerging markets, investing in the infrastructure and basic-materials sectors that are vital to trade between the developed and developing world. This way of investing in emerging markets which manager Anthony Eaton has been employing since 2005 is now becoming more fashionable with other managers too. The fund also gives the private investor significant exposure to Africa, which few rivals do. I'm not entirely convinced of the need to have an entire frontier-market fund in the average portfolio, but Africa is certainly an interesting place right now.

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IM Argonaut European Alpha manager Barry Norris integrates market sentiment into his strategy in a novel way. He and his team look at analysts' forecasts for company earnings. He then conducts his own analysis from both bottom-up (the company itself) and top-down (the wider environment) perspectives and tries to find anomalies from which he can profit. Norris is also happy to take contrarian views in other ways. Whereas most investors would consider Volkswagen to be a value stock, he thinks of it as a growth stock. This investment process has not always worked for him, and there have been periods of underperformance, but Norris has stuck to his style nonetheless and done well over the medium to long term. He has also protected investors against the downside crucial in recent years.

A third fund we like is Insight Absolute Insight. Most commentators agree that the outlook for bonds is fairly poor. Interest rates can only go in one direction, and it is really only a matter of time before they rise and the prices of bonds fall. This is a problem for investors looking for a low-risk investment that will protect their capital. Insight Absolute Insight focuses on beating cash in a stable, repeatable way, and is one option for an investor looking for a substitute for bonds.

Within Absolute Insight, there are five underlying funds with different investment themes, some of which would not usually be employed by a private investor, such as a market-neutral, long/short strategy that seeks to hedge away market risk and lever returns out of pure stock selection. There is also bond exposure as well as emerging-market equity. It all hangs together on the skills of two talented fund managers who blend these strategies as their reading of the economic situation dictates. Even long-term investors should have an element of capital protection in their portfolios, and this fund is an intelligent alternative to bonds.