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FE Invest Approved Funds list rebalance concentrates on diversification

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Difficult conditions for investors and a slowing global economy have once again seen FE Invest backing increasing diversification in its bi-annual Approved List rebalance.

Risks identified in the FE Invest Approved List’s last rebalance – the threat of a global trade war, Brexit negotiations and continuing low returns – have not resolved over the past six months, leading to FE retaining its low-risk/highly-diversified position.
 
Reflecting this, three funds have been given a ‘buy’ rating in the latest rebalance – Man GLG Continental European Growth (Europe excluding UK), Royal London Sterling Credit and Royal London Short Duration Credit (both from the Sterling Corporate Bond sector).
 
Charles Younes (pictured), Research Manager at FE, says: “Given the ongoing uncertainty markets face, running highly-diversified and low conviction positions that are at the lower levels of the risk parameters we have set, remains the most-effective strategy for the long-term.
 
“Man GLG Continental European Growth (Europe excluding UK) is split between established leaders and emerging companies, with the former having a clear road map for strong earnings, while the latter are often vanguards in new industries. Royal London Sterling Credit meanwhile invests in corporate bonds with an investment-grade credit rating and are therefore very unlikely to default. The Manager and analysts aim to increase returns by detailed research of individual companies and have a good record of picking the right stocks in the right industry.
 
“Finally, Royal London Short Duration Credit only buys short maturity bonds and does not buy across the yield curve, meaning their credit risk is low. When credit spreads widen, the fund has a much lower maximum drawdown, which we believe is more in line with the behaviour investors would expect from a short duration credit fund.”
 
Four funds meanwhile have been given a ‘sell’ rating. These are Jupiter European (Europe Excluding UK), ASI Short Duration Credit (from the Sterling Corporate Bond sector), Premier Defensive Growth (Targeted Absolute Return) and Threadneedle UK Equity Income (UK Equity Income).
 
Younes adds: “With a defensive position, our decisions regarding our ‘sell’ list have largely been governed by managerial changes at these funds, which will naturally create a degree of uncertainty. Jupiter European for instance will soon be losing Alexander Darwell, who is setting up his own fund. Alexander has been instrumental to the success of the strategy and in the long-term it will be difficult to know whether his success can be repeated. Premier Defensive meanwhile has lost Paul Smith and his replacements do not, at the moment, have his experience. Threadneedle UK Equity Income’s Richard Colwell became Head of UK Equities since the departure of Leigh Harrison. Since then, the performance has been impacted by the loss of Leigh’s expertise as co-manager of the strategy.”

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