To continue using FE Trustnet please choose an edition:

This site uses cookies. Some of the cookies are essential for parts of the site to operate and have already been set. You may delete and block all cookies from this site, but if you do, parts of the site may not work. To find out more about cookies on the website and how to delete cookies, see our Privacy and Cookie Policy.

I accept the FE Trustnet cookie policy

For more information Click here

Login

Login

Register

It's look like you're leaving us

What would you like us to do with the funds you've selected

Show me all my options Forget them Save them
Customise this table

Five funds for a three-year horizon

In the fourth article in the series, FE Trustnet asks industry professionals which funds they would recommend for investors who want their money back within three years.

Joshua Ausden

By Joshua Ausden, News Editor
Thursday February 28, 2013

Investors with only a three-year time-horizon should largely steer clear of the equity market, according to Hargreaves Lansdown’s Laith Khalaf and Richard Troue.

Even if the economic outlook is rosy, both industry experts believe investors saving for something specific in three years' time should invest predominantly in cash and low-risk assets such as bonds.

"If you’ve only got three years I wouldn’t want to take on much market risk – maybe not any at all," said Khalaf.

Troue added: "Three years is not a very long time when investing. I’d look to invest in a cash ISA."

"However, if you do want to take on a little bit more risk, there are a few options."


Standard Life GARS

"If you do want to add in some risk, then something in the Absolute Return sector would be appropriate," said Khalaf.

"Standard Life GARS [Global Absolute Return Strategies] is a good choice."

The £14.4bn fund – one of the largest in the entire IMA unit trust and OEIC universe – aims to make a positive return over the medium- to long-term by investing in a basket of assets.

One way it does this is by utilising market-neutral positions, meaning that when it goes long on a certain market, it hedges this risk by going short on another.

For example, the fund currently has a US equity large cap versus small cap position, which means that the only return it will make is the difference in returns between the large and small cap market.

Often the fund skews its position in favour of a particular market and in certain circumstances it takes long positions without hedging out any market risk at all.

Performance of fund vs sector and index since launch

ALT_TAG

Source: FE Analytics

GARS has been largely successful since its launch into the retail market back in May 2008; according to FE data, it is up 37.48 per cent, significantly beating its IMA Absolute Return sector average and Libor GBP 6m benchmark, albeit with more volatility.

The fund has delivered a positive return in every full calendar year since inception, although as the graph above shows it suffered a fall during the second half of 2008.

It requires a minimum investment of £500 and has a total expense ratio (TER) of 1.59 per cent.


CF Miton Strategic Portfolio

"Another option is something like the CF Miton Strategic Portfolio," continued Khalaf. "It’s not an absolute return fund as such, but the manager [Martin Gray] has very much an absolute return mindset."

ALT_TAG Khalaf points out that Gray (pictured) is "very capital aware" and has a good record in falling markets, while still managing to make money during rising ones.

"Investors should be aware that this fund could still lose money over short periods," warned Khalaf.

According to FE data, the £250m CF Miton Strategic Assets Portfolio has a max drawdown of 8.36 per cent over the last decade – the lowest in its Flexible Investment sector.

It is also the least volatile fund of its kind.

Performance of fund vs sector over 10yrs

ALT_TAG

Source: FE Analytics

The fund has returned 108.41 per cent over the last decade, meaning that it has slightly underperformed its sector. However, as the graph above shows, investors have had a far smoother ride over the 10 years.

Gray is currently defensively positioned, with only around 30 per cent in equities. Around the same portion of the portfolio is invested in cash, with the rest in bonds and alternative assets such as property.

CF Miton Strategic Assets Portfolio is a fund of funds. It requires a minimum investment of £1,000 and has a TER of 2.13 per cent.


Trojan

Troue says that Sebastian Lyon’s Trojan fund is in a similar mould to CF Miton Strategic Portfolio, in that it targets an absolute return without actually sitting in the sector.

"If willing to take on a little risk, then it would have to be something like Troy Trojan," he said. "The little equity exposure it has is in global large caps, with the rest in cash, index linkers and gold."

"The focus is very much on capital preservation."

Trojan has the third-lowest drawdown of any fund in its IMA Flexible Investment sector over a decade, behind only CF Miton Strategic Portfolio and CF KB Ramogan.

However, unlike Gray’s fund, it has actually outperformed its peer group over the period, with returns of 166.51 per cent.

Lyon’s fund is soft-closed, but is still available on various platforms. It is £2.4bn in size and has five FE Crowns.


CF Ruffer Total Return

The FE Research team rates FE Alpha Manager Steve Russell and David Ballance’s CF Ruffer Total Return fund highly and include it in the FE Select 100.

"The fund falls in the IMA Mixed Investment 20-60% Shares sector rather than IMA Absolute Return, but its managers focus on protecting investors’ money rather than beating rivals," said the team.

"Unlike many Absolute Return funds, the team has a good record of meeting its objectives, with the single exception of 2006."

The fund had a particularly good 2008, making more than 20 per cent, compared with losses of more than 15 per cent from its sector average.

It has the second-lowest max drawdown in its Mixed Investment 20-60% Shares sector over the last decade and is also a top-quartile performer in terms of total return.

The managers believe inflation could be rife in the medium- to long-term and have positioned their portfolio accordingly, with overweights in inflation-linked bonds and gold.

CF Ruffer Total Return requires a minimum initial investment of £1,000 and has a TER of 1.52 per cent.


Insight Absolute Insight

The FE Research team also likes FE Alpha Manager Reza Vishkai and Sonja Uys’ Insight Absolute Insight portfolio – a fund of funds vehicle that invests in other collectives run by Insight.

"The risk-return profile of the fund may look boring, but this is exactly what its managers are aiming for: to provide small but regular returns, minimise volatility and preserve investors’ capital," said the team.

The fund has achieved a positive return every calendar year since its launch, with the exception of 2008, when it lost just 0.16 per cent.

It is up 30.13 per cent over five years – around twice as much as the average Absolute Return fund.

Like Standard Life GARS, it utilises a market-neutral strategy, which it gets access to through the Insight Absolute UK Equity Market Neutral portfolio – its largest holding.

Insight Absolute Insight requires a minimum investment of £5,000 and has a TER of 1.26 per cent – exclusive of performance fee.


In the previous article in the series, FE Trustnet looked at funds that suit investors with a five-year horizon.


Editors’ Picks

Add your Comments

Step 1: Tell us what you think...

Step 2: Prove you're not a robot...

You don't have to do this every time you submit a comment.
Login or register free and you won't see it again.

Step 3: Submit your comment...

Submit

 
roy Mar 03rd, 2013 at 10:38 AM

Spot on article.

After a lifetime of work and planning and investing I have a substantial amount of assets to manange and a 5% drop would be gut wrenching.I have always followed the golden rules:

1 dont lose your money
2 dont forget rule 1
3 buy low
4 sell high
5 over the long term all things regress to the mean
6 patience patience patience........

These funds ( bar 1 ) are gold nuggets and this article is bang on.

Reply
dlp6666 Feb 28th, 2013 at 11:01 AM

I think even more helpful would be details of maximum drawdown figures for ALL of these funds, please.

That would cater for the 'worst case scenario' and makes comparision with cash (drawdown [excl. inflation]= NIL) more meaningful.

Reply
 

Back to top of page

Videos

Video Archive

 

Funds mentioned in this article

Groups mentioned in this article

Managers mentioned in this article

Poll

 

Question: What is the best asset class to protect investors from equity risk?

Bonds

Absolute return strategies

Property

Commodities

Vote