The firm aims to beat cash by varying amounts depending on the level of risk in each fund in its range, targeting steady year-in, year-out growth.
In order to achieve this, it looks outside the usual realm of equity, equity income and fixed income portfolios – using a variety of investment tools.
“If we want beta, we’ll add passives, if we think we can add alpha, then we’ll buy an active manager or an investment trust. It’s really the right tool for the right job,” he said.
With this in mind, Hughes reveals five funds Apollo is backing in its multi-asset funds.
Argonaut European Alpha
A fund Apollo has picked up to play the current economic recovery in Europe is the four crown-rated FP Argonaut European Alpha fund, headed up by FE Alpha Manager Barry Norris.
“The rationale behind why we picked that fund is that several months ago we saw a distinct change in the European economic climate, with the recovery broadening out away from core areas like Germany and into more peripheral areas,” Hughes said.
He says the team wanted an active manager that was able to benefit from economic momentum and that Norris was well-placed to take advantage of the improving economic climate in Europe.
“It’s a great fit for how we saw the European recovery,” he said.
The £219m fund has been a standout performer in the IMA Europe ex UK sector, beating its peers over the last one, three and five years.
It has also outpaced the MSCI Europe ex UK index over each period. The fund has made 111.94 per cent over the last five years while the sector gained 83.42 per cent. The MSCI Europe ex UK index gained 74.51 per cent over the period.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The stocks in Norris’s portfolio have also handled the start of the year exceptionally well. The Argonaut fund has gained 7.53 per cent since Apollo picked it up in November. The sector and index are barely in positive territory over that period – up just 0.9 per cent and 0.18 per cent, respectively.
As Hughes highlights, Norris is well placed for anyone who thinks peripheral Europe is on the road to recovery – holding contrarian bets such as Greek banks further down in the portfolio, as well as Italian cement company Buzzi Unicem in its top-10 holdings. The largest sector weighting in the fund is to financials, at 33.26 per cent.
The fund requires a minimum investment of £500 and has ongoing charges of 1.81 per cent.
Odey Absolute Return
One of the longest-term holdings in the Apollo funds is the four crown-rated CF Odey Absolute Return fund, run by James Hanbury.
Although the fund is now hard-closed at roughly £1bn, Hughes says the team at Apollo bought it when it was just £20m in size because they believed in Hanbury’s long-term stockpicking ability.
He says Apollo will stick with the manager because he expects his style to continue to outperform this year.
“The team saw pure potential in Hanbury as a good stockpicker. That will be even more useful this year. The long/short strategy has played to his strengths and will continue to do so this year,” he said.
The fund has made 190.08 per cent since launch in May 2009, making more than double the returns of the FTSE All Share and nearly 10 times that of the IMA Targeted Absolute Return sector.
Performance of fund vs sector and index since launch
Source: FE Analytics
However, the fund has taken on much more risk than its peers to achieve those high returns.
The fund has been equally as volatile as the FTSE All Share over the last five years, with annualised volatility of 12.01 per cent. The average fund in the sector scored just 2.25 per cent.
It is worth noting the fund has managed positive returns in each calendar year since launch.
Macau Property Opportunities
The biggest holding in Apollo’s portfolios is not an open-ended fund, but rather the niche Macau Property Opportunities investment trust. Hughes says the trust is capitalising on the “phenomenal” gaming revenue from Chinese consumers and much of Asia.
“It was our best-performing holding last year. It returned nearly 100 per cent,” he said.
Hughes admits the trust is not for the inexperienced investor because it is quite specialised.
“It’s very niche. But we’ve done the work, we understand it and we’ve held it for a long time,” he said.
“If you look a bit deeper, you can find something that does really add something different.”
The Macau trust has performed exceptionally well over five years, returning more than 300 per cent. In 2013 alone the fund made 84.62 per cent. Other funds in the IT Property – Direct Asia Pacific sector made just 37.89 per cent.
Performance of trust vs sector in 2013
Source: FE Analytics
The trust, which was previously a holding in Neil Woodford’s Invesco portfolios, is trading on a discount of 14.1 per cent and is geared at 29 per cent. The trust has ongoing charges of 6.31 per cent, including a hefty performance fee.
SWIP Absolute Return Bond
Apollo has pulled away from traditional long-only bond funds after a difficult time for the asset class, preferring instead to gain fixed income exposure through absolute return products.
One core holding it backs in this area of the market is the four crown-rated SWIP Absolute Return Bond fund, run by James Carver and Graeme Caughey.
“It’s a lower-risk core holding,” Hughes said.
The SWIP fund has consistently beaten its cash benchmark over one, three and five years, returning 2.2 per cent over the last 12 months while many bond funds have had a rough ride.
Performance of fund vs sector over 1yr
Source: FE Analytics
However, it hasn’t shot the lights out in the sector, trailing other Targeted Absolute Return funds over one and five years – owing largely to the fact that it is exposed to fixed income rather than equities.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.14 per cent.
Muzinich Long Short CreditYield
Hughes says the team gives its fixed income exposure an extra kick by combining the SWIP portfolios with the Muzinich LongShort Credit Yield fund.
“When combined with the SWIP fund, they offset each other very nicely, and they’re both very low risk,” he said.
The Dublin-domiciled portfolio was only launched in 2012, but over the last year it has strongly outperformed the FCA Offshore Recognised Absolute Return sector, gaining 4.13 per cent. The sector made just 0.76 per cent over this period.
Performance of fund vs sector over 1yr
Source: FE Analytics
It also has an attractive yield of 5.88 per cent. However, the fund has a massive direct minimum investment requirement and is not available via platforms – meaning investors can only gain access through model portfolios or discretionary managers.
