Five open-ended funds that are ‘hidden gems’ for investors Five open-ended funds that are ‘hidden gems’ for investors

Darius McDermott, managing director at Chelsea Financial Services, has revealed the five open-ended funds he thinks can be ‘hidden gems’ for 2017.

 Five open-ended funds that are ‘hidden gems’ for investors

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Each of the open-ended funds he has nominated has assets of less than £100 million.

The first fund he mentioned is Aberdeen Emerging Markets Bond.

Aberdeen Emerging Markets Bond

He said, ‘This fund is run by Brett Diment and Edwin Gutierrez, who have worked together since 2001. Aberdeen has a huge footprint in emerging markets investing. They are very well known on the equity side, but also have a well-resourced, experienced and stable emerging market debt team.

McDermott continued, ‘Their extensive network of contacts puts them in a position to deliver consistent performance. Fundamental research is the key to their process. The team does not invest in a bond until they fully understand it; they achieve this by visiting countries to meet management, and utilising Aberdeen’s extensive network of contacts in governments and central banks as well as the IMF. This fund is obviously higher up the risk scale than most other bond funds but does have the added benefit of a high yield: currently 6.9 per cent.’

The second fund he nominated is BlackRock European Absolute Alpha.

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BlackRock European Absolute Alpha

He commented, ‘This fund aims to deliver positive returns on a 12-month basis in any market conditions – this isn’t guaranteed, and they may just miss this target in 2016, but they’ve had a great track record of delivering on this in the past five calendar years. It invests in the shares of companies incorporated or listed in the European Economic Area and also Switzerland and can also invest in bonds and cash if the manager wishes. It can short stocks as well as hold them for the long term. It’s been run by Vincent Devlin, a manager we respect very highly, since 2009 and Stefan Gries became co-manager in 2013.’

Next up from McDermott is the River and Mercantile UK Equity Long Term Recovery fund.

R&M UK Long Term Recovery

The analyst said, ‘As the name suggests, Hugh {Sargent the fund manager} is looking for recovery stocks, where good businesses are currently experiencing below normal profit levels, which are depressing their valuations. If they have the capabilities to help themselves out of this predicament – management that can turn things around – Hugh will take them on board. The portfolio will hold around 150-200 stocks. Hugh has a wealth of experience at his disposal. With the market as volatile as it is currently, Hugh has been able to make additions to his holdings at almost fire-sale prices, further increasing the possibility of long term capital appreciation, as well as dis-correlation from the benchmark.’

McDermott’s next pick is the Unicorn Smaller Companies fund.

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Unicorn Smaller Companies

He said, ‘This is a very high conviction UK smaller companies fund composed of around 40 stocks. Unicorn beat all other asset managers to top the 2016 FundCalibre Fund Management Equity Index and that was in part due to the excellent performance of this fund. Simon Moon, the manager, describes his job as “fascinating; the real opportunity and intrigue lies in uncovering some truly hidden gems at the lower end of the market cap spectrum.” He is truly passionate about investing. We like the focus on company fundamentals and understanding businesses in detail. Another positive is that the fund avoids low quality cash-burning stocks.’

His final pick will be one that is even less well known than many others, Wood Street Microcap.

Wood Street Microcap

McDermott said, ‘This UK micro-cap fund has been managed by Ken Wotton since its launch in 2009, with the support of the 40-strong specialist team at Livingbridge, who have 20 years’ experience investing in this space. It is a growth fund that aims to invest in companies which can double their earnings over a five-year period and it only invests in companies in a select number of sectors where the team has specific expertise. The highly concentrated nature of this fund is unusual for smaller companies, which increases the potential for strong returns but also increases risk. Ken is another passionate investor, saying: “The variety and dynamism of genuinely smaller companies always keeps this job interesting. It’s exciting to back entrepreneurs and help them to grow their businesses.’

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