Quilter Cheviot’s Nick Wood’s top funds for 2022

With the global economic outlook becoming increasingly unpredictable due to rising inflation and new covid variations, next year looks set to be a challenge for investors.

But Nick Wood, head of fund research at Quilter Cheviot said that by ignoring the “fragile markets” in the short term and focusing on long-term prospects, investors can ride out the worst of 2022.

He added that diversification will be key. Below, Wood takes Trustnet through his three top picks for the year ahead.

Finsbury Growth and Income

The Finsbury Growth and Income trust’s performance has slowed in recent months, making it an ideal time to buy into whilst prices are low, Wood said.

He has faith that FE fundinfo Alpha Manager, Nick Train will lead the investment trust back into a strong growth trajectory next year.

“It is always best to buy a manager after a dip in performance if you think they still have skill, which Train clearly does if you look at his long-term record,” he said.

Despite lower returns of 4.8% over the past year – the third-worst among its IT UK Equity Income peers – the trust is still outperforming its rivals and the FTSE All Share benchmark over five years.

Total return of fund vs sector and benchmark over 5yrs

Source: FE Analytics

The trust holds all its assets in UK equities, most notably Diageo (12.3% of holdings), Unilever (7.9%) and Burberry (6.8%), with manager Nick Train known for his buy-and-hold approach, investing in a small number of stocks that have sustainable long-term earnings.

“With inflation no longer looking transitory and prices likely to be reset at a higher level, these companies have pricing power potential. Coupled with the fact they are firms that you can be comfortable buying and holding, the trust looks attractive at its current price,” said Wood.

Granahan US SMID Select

Most of this fund’s holdings are in small and mid-cap growth companies based in the US market. The fund has beaten the Russell 2500 Growth benchmark by 7 percentage points this year, but has been significantly more volatile .

Total return of fund vs sector and benchmark in 2021

Source: FE Analytics

The fund has returned 11.6% in 2021 but has dropped 19.4 percentage points since the start of November, and is down 31 percentage points from its peak in February.

Wood said: “The fund holds some relatively large positions, with the top 10 making up just over 50% of the fund. This is unusual for a smaller companies fund but reflects the high conviction that the fund manager has in their holdings.

“The manager has demonstrated strong stock picking since he started managing the strategy in 2015 and has beaten his own small-cap index in every calendar year.

“This fund will be volatile over the short-term so for investors this is a fund to hold in 2022 and further beyond to get the full advantage of it in a portfolio.”

Fund vs sector in 2021

Source: FE Analytics

PIMCO Dynamic Multi-Asset

With volatility expected to be a key feature of markets in 2022, the PIMCO GIS Dynamic Multi-Asset fund aims to take advantage of swinging asset prices.

“The PIMCO Dynamic Multi-Asset fund is one such that is structured to take advantage of choppy markets as well as long-term structural trends,” Wood said.

The fund, managed by Geraldine Sundstrom, holds 29% of its assets in developed ex-US bonds, while 32% is in short-duration instruments.

“The fund also has good exposure to equities so will take advantage of any further rally in share prices, while also being able to withstand any significant fall in stock markets and seek out other opportunities in different markets,” he added.

It has made a 2.3% return over the past year and is 9.2 percentage points beneath the IA Flexible Investment sector but Wood said its exposure to “themes such as digitisation and the transition to green economies” should make it profitable in the long-term.