Be it an income-focused or growth-orientated portfolio, investors with an eye on retirement want a lower-risk fund that can cope in all market conditions.
Adrian Lowcock (pictured), senior investment manager at Hargreaves Lansdown, says the key to building a low-risk portfolio is making sure it is fully diversified across different asset classes and regions."The first thing I would say about investors approaching retirement is not necessarily going to be selling and they don’t really want to be buying annuities because the current rates are very low," Lowcock said.
"Investors need to work out what they are targeting in the long-run and look to diversify across a range of assets."
FE Trustnet looks at five funds suited for investors' retirement.
Jupiter Strategic Bond
Lowcock says that investors who want a low-risk fund should always keep an eye on fixed income options and highlights FE Alpha Manager Ariel Bezalel’s Jupiter Strategic Bond fund as a good example.
"While the outlook for the fixed income market isn’t as rosy as it has been previously, investors will still want that guaranteed level of income."
"Plus, with a strategic bond fund the manager has more flexibility within the market," he said.
| Name | Jupiter Strategic Bond |
|---|---|
| Fund Size | £1.4bn |
| Min. Investment | £500 |
| TER | 1.51% |
| Yield | 5.70% |
| Manager | Ariel Bezalel |
| FE Crown Rating | 5 |
Source: FE Analytics
According to FE Analytics, Jupiter Strategic Bond is yielding 5.7 per cent and has beaten the IMA Sterling Strategic Bond sector over one and three years.
The five crown-rated fund was launched in June 2008, since when it has returned 69.99 per cent.
It benchmark, the Iboxx Sterling Non-Gilt All Maturities index, and the sector have returned 43.86 per cent and 35.7 per cent over this time, respectively.
Performance of fund vs sector and index since June 2008
Source: FE Analytics
That makes it the second-best performing fund in the sector over this time – falling slightly behind L&G Dynamic Bond.
The fund has had a lower annualised volatility than both the sector and the index since its launch.
JOHCM UK Equity Income
"Another possible option is in the equity income space," Lowcock continued.
"Funds I would go for are the likes of Artemis Income or JOHCM UK Equity Income. You want diversity and even if one is higher risk than the other, the point is having that diversity."
| Name | JOHCM UK Equity Income |
|---|---|
| Fund Size | £1.5bn |
| Min. Investment | £1,000 |
| TER | 1.28% |
| Yield | 4.60% |
| Manager | Clive Beagles & James Lowen |
| FE Crown Rating | 4 |
Source: FE Analytics
The £1.5bn JOHCM UK Equity Income fund is the second-best performer in the IMA UK Equity Income sector over the last five years.
It has returned 77.78 per cent over this time compared with 35.17 per cent from the FTSE All Share and 33.95 per cent from the sector.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund has been slightly more volatile than its peers and benchmark over this time.
SWIP UK Flexible Strategy
Tony Yousefian (pictured), who runs a number of multi-manager portfolios at EFA OPM, says he holds many funds that would suit investors with a low risk tolerance.
"Because we blend our portfolio, we have a number of low-risk funds that offset the more volatile holdings," he said.
"If investors are looking for a low-risk approach to the equity market then a fund we hold is SWIP UK Flexible Strategy."
"It is a fund that has served us extremely well and though it is an equity fund, it has a very low Beta and is not correlated to the equity markets."
"The manager has the ability to go both long and short within the portfolio in order to achieve returns in all markets," he added.
| Name | SWIP UK Flexible Strategy |
|---|---|
| Fund Size | £43.9m |
| Min. Investment | £1,000 |
| TER | 1.69% |
| Yield | 1.30% |
| Manager | James Clunie |
| FE Crown Rating | 1 |
Source: FE Analytics
SWIP UK Flexible Strategy – which sits in the IMA Specialist sector – was launched in May 2006 but has been managed by James Clunie since August 2009.
Over the last three years the fund has returned 25.91 per cent while its benchmark – the Libor 3 Month index – has returned 2.41 per cent.
Performance of fund vs index over 3yrs
Source: FE Analytics
Henderson Credit Alpha
"For investors who want fixed income exposure, a fund I hold is the Henderson Credit Alpha fund," Yousefian continued. "It is a bit spicier than other bond funds, but has delivered reasonable returns recently."
The five crown-rated Henderson Credit Alpha fund is managed by Tom Ross, Stephen Thariyan and Chris Bullock. The latter two are FE Alpha Managers.
| Name | Henderson Credit Alpha |
|---|---|
| Fund Size | £545.6m |
| Min. Investment | £1,000 |
| TER | 0.04% |
| Yield | 2.90% |
| Manager | Stephen Thariyan, Chris Bullock and Tom Ross |
| FE Crown Rating | 5 |
Source: FE Analytics
Since the fund's launch in June 2007, it has returned 58.7 per cent while the IMA Absolute Return sector and the Libor 3 Month index have returned 16.14 per cent and 13.19 per cent, respectively.
Performance of fund vs sector and index since June 2007
Source: FE Analytics
The fund charges a performance fee.
Invesco Perpetual Distribution
FE Research’s Charles Younes (pictured) says the five crown-rated Invesco Perpetual Distribution fund is a perfect fit for investors with a three-year time horizon.
The fund is headed by up Paul Causer and Paul Read – who look after the fixed income side of the portfolio – while FE Alpha Manager Neil Woodford takes care of the equity portion of the fund.
| Name | Invesco Perpetual Distribution |
|---|---|
| Fund Size | £2bn |
| Min. Investment | £500 |
| TER | 1.57% |
| Yield | 5.38% |
| Manager | Paul Causer, Paul Read & Neil Woodford |
| FE Crown Rating | 5 |
Source: FE Analytics
"Causer and Read decide how much of the fund is allocated to each portfolio based on their assessment of the economic outlook," Younes said.
"Typically their fixed income portion accounts for 60 to 70 per cent of the fund, although they can raise this to 100 per cent if they wish.""Woodford runs his portion similar to the way he runs his Income and High Income funds – that is to say cautiously."
"Causer and Read, on the other hand, are more willing to take on risk when they spot opportunities."
"The differing approaches and styles of the two management teams dovetail nicely to produce a well-rounded portfolio."
"Unusually, the increased equity portion makes this fund slightly more cautious than its sister fund, Invesco Perpetual Monthly Income Plus."
"In both cases, the level of risk is largely defined by the percentage of the portfolio managed by Read and Causer, who pursue a more adventurous strategy despite investing in what is traditionally a less risky asset class," he added.
Performance of fund vs sector over 5yrs
Source: FE Analytics
The £2bn Invesco Perpetual Distribution fund is the second-best performing fund in the IMA Mixed Investment 20%-60% Shares sector over five years. The fund has returned 51.62 per cent while the sector has returned 23.07 per cent.
The fund has been slightly more volatile, however.
It is currently yielding 5.38 per cent.