Discover Hidden Investment Gems on Fund Smart

Over the last 18 months, funds investing in technology and US large-cap growth-oriented equities have been the centre of focus for the actively managed fund universe. However, there are many high quality funds outside of this bucket that generate solid returns over the cycle often well above their respective benchmarks. This success can be attributed to their robust bottom-up security selection strategy–we call these the Hidden Investment Gem funds.

The Endowus Investment Office has carefully selected five such Hidden Investment Gem funds, comprising three in equities and two in bonds.

The three equity funds each excel in stock selection in:

1. A secular growth sector that has been out of favour: Biotech
2. A secular growth region that is in the emerging markets: India
3. A factor that is out of favour: Global value

The two bond funds are diversifiers and strong managers in

4. A region out of favour: Emerging markets
5. A sub asset class that is lesser known to non-US investors: Municipal bonds

These include Janus Henderson Horizon Biotechnology Fund, Ashoka White Oak India Opportunities Fund, T. Rowe Price SICAV - Global Value Equity M&G Emerging Markets Bond Fund, and BNY Mellon U.S. Municipal Infrastructure Debt Fund.

June 2024 – Hidden Gems Collection

Janus Henderson Horizon Biotechnology Fund

‍Why Hidden: Despite historically delivering solid double-digit returns fueled by innovation and growth, the biotech sector has fallen out of favour. This shift is attributed to the sector’s long-duration nature in the context of rising interest rates.

‍Why is this a Gem: By offering dedicated exposure to the biotechnology sector, this fund gives investors the chance to engage with the growth of companies leading the charge in medical innovation.

Biotechnology is a sector where there is a wide variance of winners and losers given the early-stage nature of its companies and it is critical to find a fund that has an expert investment team (composed of medical experts) with a proven track record that knows how to pick the winners and also manage the risk.

In terms of risk management, the fund employs a robust value-at-risk framework (VAR) to mitigate downside risk with limited position sizes so the worst-case scenario impact on the portfolio will not exceed 200 basis points.

Overall, the fund’s performance over its benchmark, the Nasdaq Biotech Index, has been strong since its inception in 2018.

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Ashoka White Oak India Opportunities Fund

‍Why Hidden: Lesser known boutique fund manager, but a star portfolio managing a new fund on the Endowus platform

‍Why is this a Gem: This fund provides investors with access to Indian equities, exposing them to the structural growth opportunities in India. These opportunities are supported by long-term tailwinds, such as a domestically driven growth profile, a reform-oriented government, and a robust corporate landscape.

Managed by Prashant Khemka, the founder of White Oak Capital Management and former CIO and lead portfolio manager of GS India Equity at Goldman Sachs Asset Management, Khemka has been at the helm of managing Indian equity portfolios since 2007. He boasts a robust track record of consistently delivering alpha across market cycles. The portfolio manager is bolstered by a well-equipped team of over 30 analysts, the majority of whom are stationed in India. This local presence is crucial for gaining in-depth insights into the Indian Equity Market, especially for small and mid-cap companies that typically receive less research coverage.

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T. Rowe Price Funds SICAV - Global Value Equity Fund

‍Why Hidden: Value funds have been under-appreciated relative to growth funds. The combination of both relative and deep value should enable the fund to do well in different market conditions

‍Why is this a Gem: This fund provides exposure to a high-conviction portfolio of global companies across the value spectrum with typically half of the portfolio in higher quality and more defensive businesses with durable free cash flows and the other half in deep value or lower quality names.

The fund also exhibits contrarian characteristics with the team occasionally deciding to hold, or even add onto detractors in an attempt to take advantage of uncertainty. This approach has historically benefited the fund.

This approach has resulted in strong risk-adjusted performance since the inception of the fund with strong downside capture and a comparable upside capture.

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M&G Emerging Markets Bond Fund

‍Why Hidden: Emerging markets bonds have been out of favour. Lesser-known manager in the retail space

‍Why is this a Gem: Emerging Markets carry a significant tail risk, as recent events in Ukraine and Israel have starkly demonstrated—anything can happen. Consequently, the M&G team dedicates a substantial portion of their time to meticulous research, aiming to sidestep potential pitfalls. The robustness of their approach and their capacity for independent thought—distinct from both the consensus and internal viewpoints—shine through in their long-term performance.

The strategic allocation is also thoughtfully divided with one-third in emerging market corporate debt (hard currency), one-third in emerging market government debt (hard currency), and the final third in emerging market government debt (local currency), ensuring both risk management and flexibility in currency considerations.

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BNY Mellon U.S. Municipal Infrastructure Debt Fund

‍Why Hidden: A niche asset class for non-US investors

‍Why is this a Gem: Municipal bonds is an asset class relatively unfamiliar and underrepresented among non-US investors, yet it provides diversification to other fixed income asset classes, including US treasuries, with a correlation of 0.5. Additionally, it offers a slight yield pick-up relative to treasuries, making it appealing for those seeking long-duration exposure. With a credit quality of AAA and yield-to-maturity of 5.40% (according to fund factsheet as of end of April), this could be of interest to investors.

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Keen for more?

To help you explore best-in-class strategies suitable for your investment plan, Endowus offers unit trusts at zero subscription and switching costs, and access to lower-cost institutional share class funds, which are not normally available to retail investors at other distributors. To date, Endowus has returned over $10 million in Cashback on trailer fees to our clients. That’s how you can lower your investing expenses over time and keep more returns on your investment. 

Check out our other curated technology fund offerings on Endowus Fund Smart and the Endowus investment fund list