This is usually to make their portfolios more cost-efficient, as the more funds they hold, the higher their overall charges are. In that respect, funds of funds are managed in a very similar way to a private investor’s portfolio, as individual investors are unlikely to want to hold more than 20 funds in their ISA or pension.
In the last two articles in the series, we looked at managers’ largest stock bets. However, given the fact we normally talk about funds here at FE Trustnet, then they are the next obvious step.
With that in mind, we look at the fund of funds managers who currently trust one of their peers with a big chunk of their assets.
Robin McDonald and Marcus Brookes – Fidelity Special Situations
Cazenove’s Robin McDonald and Marcus Brookes are clearly optimistic about the prospects for Sanjeev Shah’s Fidelity Special Situations fund.
It is the largest holding in Cazenove Multi Manager UK Growth, making up 18.7 per cent of the £139.3m fund. It also features in their Cazenove Multi Manager Diversity Tactical fund (11.45 per cent) and their Cazenove Managed Portfolio (7.7 per cent).
This means that across those three funds, McDonald and Brookes own £70m worth of units in Shah’s portfolio. Although Fidelity Special Situations has £2.6bn in AUM, it still means that McDonald and Brookes are relying on Shah to deliver.
Shah took charge of the Fidelity Special Situations fund from the long-serving Anthony Bolton in January 2008.
Investors will no doubt recall that Shah had underperformed due to his high exposure to the financial sector. His high weighting to UK banks so soon after the financial crash caused a real stir in the industry and he was widely criticised for his contrarian views.
Nevertheless, he has since reaped the rewards as the industry has bounced back. According to FE Analytics, Fidelity Special Situations has been a top-quartile performer in the IMA UK All Companies sector since Shah took over, returning 53.66 per cent and comfortably outperforming its FTSE All Share benchmark.
Performance of fund vs sector and index since Jan 2008
Source: FE Analytics
McDonald recently told FE Trustnet that he thinks Shah can continue to outperform, due to his higher-risk strategy. He still has a high weighting to banks such as HSBC, Lloyds and Royal Bank of Scotland.
Fidelity Special Situations has an ongoing charges figure (OCF) of 1.7 per cent and requires a minimum investment of £1,000.
The Jupiter Merlin team – M&G Global Dividend
John Chatfeild-Roberts, Peter Lawery and Algy Smith-Maxwell are generally regarded as some of the best fund of funds managers around. All three are FE Alpha Managers and throughout their Jupiter Merlin range they run more than £8bn worth of assets.
However, within their funds they are willing to take large bets. Their most popular position is M&G Global Dividend.
It makes up 14.09 per cent of their £4.6m Jupiter Merlin Income fund, 8.68 per cent of their £1.5bn Jupiter Merlin Balanced fund and 7.47 per cent of their £25m Jupiter Conservative Portfolio.
This means they hold around £770m – roughly 10 per cent – of the £7bn M&G Global Dividend units across their Jupiter Merlin fund range.
M&G Global Dividend was launched in July 2008 and is headed up by FE Alpha Manager Stuart Rhodes. The fund is a top-quartile performer in the IMA Global sector over five years, with returns of 85.41 per cent. It has beaten its benchmark – the MSCI AC World index – by 26.74 percentage points in the process.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
It is also a top-quartile performer over three years; however, that performance has waned of late and it has underperformed both the sector and the index over 12 months.
The fund is yielding 3.03 per cent, which may seem low but our data shows it has increased its net distribution over recent years. M&G Global Dividend has an OCF of 1.66 per cent and requires a minimum investment of £500.
Thomas Becket – M&G UK Inflation Linked Corporate Bond
Thomas Becket only has around 20 holdings within his £20m Psigma Dynamic Multi Asset fund; therefore he has to take relatively large positions with his favoured managers.
His largest individual holding is M&G UK Inflation Linked Corporate Bond, which makes up 8.2 per cent of his fund – or £1.5m of total assets under management.
M&G UK Inflation Linked Corporate Bond is managed by the company’s head of retail fixed interest, Jim Leaviss, and was launched in September 2010.
The £662.9m fund does not aim to deliver its investors an attractive level of income, but instead attempts to beat the UK consumer price index (CPI). Leaviss tries to do that by investing in index linked corporate and government bonds and by creating synthetic inflation linked bonds.
These are created from buying index-linked government bonds and then selling credit default swap (CDS) protection on the target company.
Since its launch, M&G UK Inflation Linked Corporate Bond has returned 11.91 per cent, which is above that of the CPI. However, it has underperformed against the average fund in the IMA Sterling Strategic Bond sector over that time.
The fund has an OCF of 1.17 per cent and requires a minimum investment of £500.
Nick Mustoe – Invesco Perpetual Asian
As FE Trustnet recently highlighted, Invesco Perpetual is the best-performing fund house in the IMA universe over three, five and 10 years.
That means that Nick Mustoe, who manages the fettered Invesco Perpetual Managed Growth fund, has a lot of top-performing options to choose from. His favoured holding is the Invesco Perpetual Asian fund.
Mustoe holds 19.07 per cent of his £374m fund in the group’s Asian portfolio, which is equal to about £73m of AUM. That means that – as Invesco Perpetual Asian is £566m – Mustoe owns roughly 13 per cent of the fund.
Invesco Perpetual Asian is managed by Stuart Parks. Our data shows that the fund has beaten the IMA Asia Pacific ex Japan sector, which is also its benchmark, over one, three, five and 10 years.
However, in a sector dominated by the likes of Aberdeen and First State, Invesco Perpetual Asian has failed to break into the top quartile over any of these timeframes. Nevertheless, over 15 years the fund has returned 531.49 per cent, which is nearly 130 percentage points more than the sector.
Performance of fund vs sector over 15 years
Source: FE Analytics
Parks’ largest regional weightings are to Hong Kong and China, which make up a combined 37.22 per cent of his portfolio. Invesco Perpetual Asian requires a minimum investment of £500 and has an OCF of 1.7 per cent.