Tom Stevenson’s 2022 ISA and SIPP fund picks

Fidelity’s Tom Stevenson plans to buy funds that offer exposure to a continued bull market, can protect against inflation and are active in undervalued markets next year.

In outlining his 2022 ISA and SIPP picks, investment director Stevenson highlighted a complicated environment for investors.

Among the positives are a successful vaccination programme in the developed world, recovery in corporate earnings and strong stock market performance. But negatives include the Omicron variant and surging inflation.

“My picks this year reflect the mixed backdrop,” he said.

“We anticipate an ongoing preference for shares over bonds as the promise of higher interest rates puts upward pressure on bond yields which move in the opposite direction to bond prices. We also expect inflation to be a persistent concern through the year.

“Finally, we expect some of the markets that have played second fiddle to the US during the pandemic to play catch up. In particular, we like the look of the UK and Japan.”

Fidelity Global Special Situations

For his first 2022 pick, Stevenson opted for the Fidelity Global Special Situations fund. The rationale here is to capture any continuing uplift in stock markets, while benefiting from the stock picking and regional asset allocation skills of manager Jeremy Podger.

“Fidelity Global Special Situations focuses on three drivers of return: exceptional value, competitive advantage and catalysts for change such as mergers & acquisitions,” Stevenson said.

“If, as we hope, we remain in the middle stage of an ongoing bull market, this fund will be a good core holding.”

Performance of fund vs sector and index under Podger

Source: FE Analytics

FE fundinfo Alpha Manager Podger took over the fund in 2012 after it had underperformed for a period; he was given free rein to overhaul it and, since then, it has performed strongly – as the chart above shows.

Ninety One Global Gold

While Stevenson’s first pick was a play on a continued bull market, his second attempts to insure his portfolio against higher inflation. While shares can perform well in times of modest inflation, commodities – especially precious metals such as gold and silver – do better when inflation starts to get strong.

Inflation has climbed higher in 2021 as the global economy restarted from the Covid-19 lockdown, leading to increased demand but supply bottlenecks. Gold, however, has dipped this year although it remains an asset that many tip as coming into its own when inflation is more sustained.

Performance of fund vs sector and gold over 5yrs

Source: FE Analytics

“The Ninety One Global Gold fund, managed by George Cheveley, invests in gold miners rather than in the metal itself, which is good news in a rising gold price environment because their profits usually rise faster than the price of the metal itself,” Stevenson said.

“Gold tends to do well when interest rates are kept below the rate of inflation, which is the case today and expected to remain so for the foreseeable future as central banks try to stimulate further recovery.”

Artemis UK Select

The last two of Stevenson’s picks focus on valuations. While the UK stock market has risen in recent years, it has grown at a much more subdued pace than the US.

In the belief that shares in the UK are available at more attractive multiples of earnings than in the US, he has added Artemis UK Select – which specialises in finding undervalued investment opportunities.

Performance of fund vs sector and index over 5yrs

Source: FE Analytics

“The Artemis UK Select fund, managed by Ed Legget, is a fairly concentrated portfolio of 40-50 stocks with a bias towards the cyclical, value-focused shares that do best in an economic recovery,” he said.

“Legget believes that the cyclical recovery in Britain still has a way to run, fuelled by a UK consumer with more money in the bank on average than before the pandemic. He thinks that companies that survived the lockdowns of the past two years are well placed to emerge stronger thanks to the disappearance of many of their competitors.”

Baillie Gifford Japanese

Attractive valuations are also the reason behind Stevenson backing Matthew Brett’s Baillie Gifford Japanese fund.

Performance of fund vs sector and index over 5yrs

Source: FE Analytics

“The Japanese stock market is one that rarely features on UK investors’ radars, but it is one of the biggest markets in the world and has actually kept pace with Wall Street over the past 10 years,” Stevenson said.

“Despite this, Japanese shares are cheaper than their US counterparts, monetary and fiscal policy in Japan is supportive and Japanese companies are increasingly shareholder friendly when it comes to dividends and share buybacks.”

He likes the fact that Baillie Gifford Japanese has a focus on one of Japan’s key areas of competitive advantage – advanced technologies such as robotics.