It can be difficult picking a fund and even more challenging to decide when a good time to sell is, but one investment manager has flagged vulnerable funds and alternative options for investors.
Patrick Thomas from Canaccord Genuity Wealth Management says investors should consider ditching Monks (MNKS) and Fundsmith Emerging Equities Trust (FEET) among several other trusts.
EXPENSIVE VALUATION
Thomas says Monks has been a star performer but it is expensive at a 4% premium to net asset value and an aggregate underlying valuation of 21 times price to earnings ratio compared to the MSCI World Index at 15 times.
He suggests investors may find better value in Scottish Mortgage (SMT) thanks to a lower NAV premium, strong performance record and exposure to a mixture of listed and unlisted business experiencing rapid growth such as music streaming service Spotify and accommodation specialist Airbnb.
Other well-known holdings in Scottish Mortgage’s portfolio including online giant Amazon, Chinese e-commerce conglomerate Alibaba, streaming service Netflix and electric vehicle specialist Tesla.
UNDER-PERFORMING PEERS
According to Thomas, Fundsmith Emerging Equities Trust is at risk of a de-rating amid a substantially worse performance than its emerging market peers.
He says emerging markets could continue to struggle on the back of a stronger dollar, prompting the investment manager to suggest switching holdings to the better-known Fundsmith Equity Fund.
The latter’s Top holdings include social networking site Facebook, payment processing service Paypal and diabetes treatment specialist Novo Nordisk.
GO LARGER
While some funds focusing on small caps have performed well, others are struggling to deliver a decent net asset value performance and so could suffer from weak sentiment.
One of the funds Thomas believes to be at risk is Aberforth Smaller Companies Trust (ASL). He suggests switching into a large company-focused fund like Finsbury Growth & Income (FGT).
In the latter, top holdings include Gordon’s gin and Johnnie Walker owner Diageo (DGE) and consumer goods colossus Unilever (ULVR).
