Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Charles MacKinnon, chief investment officer, Thurleigh Investment Managers.
When equity markets have just had a stellar run-up (as I write they're touching new highs), it is always hard to hold your nerve and continue to allocate capital to solid investment themes that have delivered handsomely in the recent past. One of the main keys to investment success, over all but the shortest term, is not to get carried away with the latest bout of market euphoria and to focus on getting your asset allocation correct.
A focus on assets that haven't participated in the recent rally is a good bet for investors wondering where to put their money. A good example is the European companies sector. Despite what feels like an explosive recent rally, the Stoxx Europe 50 Index is currently at a price that it first passed in 1997 16 years ago.
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It has, of course, been higher and lower in the intervening years, but it is still 50% below its peak in 2000. Looked at in this context, there is still everything to play for. Here are some funds that we feel are well placed to take advantage.
Jupiter European Equity (tel: 0844-620 7600), run by Alex Darwall since 2001, has consistently been top-quartile. We like this fund now, even after a 29% return in 2012, because of the way that he constructs the portfolio and the level of concentration that he is willing to tolerate.
His top ten positions represent nearly 60% of the portfolio, and he only has 38 holdings in total. This means that this fund will be very unlikely to move in a similar way to the benchmark, and that he is taking genuine investment risks, not just in terms of his stock selection, but also with his sectorial breakdown.
The other important point is that, while the fund has the word Europe' in its name, the firms it holds are world-class, long-term-growth companies. The total expense ratio (which factors in all of the costs of owning a fund to an investor) is 1.04%, according to Morningstar.
Thorsten Winkelmann's Allianz Europe Equity Growth Fund (00 49 69 263 14276) is another large fund with assets under management of more than €4bn. It is slightly less concentrated than the Jupiter fund, with its top ten holdings forming 30% of the portfolio.
The significant difference between the two is that this fund can hold British shares, which gives the manager a more balanced universe to choose from he uses that freedom to great advantage. The total expense ratio is 1.76%.
The third fund that we like is the Fundsmith Equity Fund (0330-123 1815), which was set up in 2010 by Terry Smith with a very clear set of investment aims. This is a global fund with a strong value bias. Again, it has a concentrated portfolio, with 27 names. Having grown significantly, it now controls more than £1bn in assets.
We like this fund because it brings with it a clearly articulated strategy with a focus on investments that have consistently high returns on equity. We also like the fund's focus on what Warren Buffett has described as the process of building a moat around your business: using profits to make your proposition unassailable by new entrants. The total expense ratio is 1.17%.
We hope with all three of these funds that an investor won't simply experience index-like returns. None of them guarantees an easy ride, as the stock concentration they display will inevitably mean that there will be setbacks along the way. However, overall these funds should produce significantly higher risk-adjusted returns for your portfolio over the long term.
