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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 four such Hidden Investment Gem funds, comprising three in equities and one in bond.
The three equity funds that excel in stock selection are:
- A secular growth sector that has been out of favour: Biotech
- A secular growth region that is in the emerging markets: India
- Low volatility equities
The bond fund is a diversifier and strong manager in
- A sub asset class that is lesser known to non-US investors: Municipal bonds
These include Janus Henderson Horizon Biotechnology Fund, BNY Mellon U.S. Municipal Infrastructure Debt Fund, GSAM India Equity Portfolio, and AB Low Volatility Equity Portfolio 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 won’t 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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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 4.68%, this could be of interest to investors.
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GSAM India Equity Portfolio
Why Hidden: Relatively new fund on the Endowus platform
Why is this a Gem: Adopting a flexible and dynamic investment philosophy, active fund managers have traditionally avoided the public sector companies in India, often viewing them as less attractive investments. However, the GSAM India team adopts a more open-minded and pragmatic stance towards the country’s public sector, especially if the opportunity is particularly compelling.
The fund’s strategy also includes a balanced allocation with an awareness of tracking error. It may hold positions in companies and/or sectors, like energy and utilities, that are less commonly held by other active funds. This approach aims to minimise tracking error. The key benefit of this investment philosophy is its ability to mitigate the risk of significantly underperforming the benchmark during sector-specific rallies, such as those in the energy sector.
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AB Low Volatility Equity Portfolio Fund
Why Hidden: Low-key stealth portfolio
Why is this a Gem: The fund provides exposure to a globally diversified portfolio of high-quality companies, with a focus on lower volatility and downside protection through a balanced exposure to three main factors: quality, stability and reasonable price. The team uses a mixed quantitative and fundamental process to maintain the portfolio’s consistent style.
Since its inception, the strategy has demonstrated strong risk-adjusted returns, showcasing its ability to lower volatility and provide downside protection during market drawdowns. The fund has historically maintained its target beta of 0.7 to 0.8, while delivering returns comparable to the equity market over a full market cycle.
The fund is managed by two experienced portfolio managers, with an average of 25 years of investment experience. They are supported by a robust team comprising 38 fundamental analysts and 10 quantitative analysts.
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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.
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