The two funds are favourites among investors and advisers looking for a one-stop shop, anyone starting out on their investment career and those who prefer to outsource manager selection to proven experts.But Cockerill says he favours the £1.3bn Cazenove Multi-Manager Diversity fund for cautious investors due to the recent strong cash position taken by the fund's co-managers Marcus Brookes and Robin McDonald.
However he emphasised that the decision could only ultimately be judged on the timing and use Brookes and McDonald make of the cash.
“For someone who is cautious in their outlook and is happy to not necessarily keep up with the equity market in order to take a lower amount of risk, it would work well in the longer term,” he said.
“Taking a 25 per cent cash position is a big call and it still leaves the managers with a secondary part to that decision: what do I do with the money, and was it the right thing to do in the first place?”
“The thing with taking such a big cash position is there are two decisions you make. One is you see something as being overvalued, but the second decision is when to put it back in.”
“The manager has made some quite bold decisions here and some people will say that’s what you’re paying him for, but if you’re more in favour of gentle decisions, this might not be the fund you want.”
Performance of funds vs sector and index over 3yrs
Source: FE Analytics
According to FE Analytics, the five crown-rated Cazenove fund has outperformed its sector over three years, returning 23.47 per cent compared with a sector average of 17.32 per cent.
It has also stayed way ahead of its inflation benchmark of 7.56 per cent over the same period and is also ahead of both measures over one and five years.
Over the same period, Jupiter Merlin Income also beat its sector and benchmark, returning 21.43 per cent, more than 2 percentage points less than Cazenove Multi-Manager Diversity.
Jupiter Merlin Income also carries a higher ongoing charge, 2.35 per cent compared with Cazenove Multi-Manager Diversity’s 1.71 per cent.
“If your outlook is that inflation is going to be fairly benign, then a fund which has fairly cautious with modest returns is right for you. This fund [Cazenove Multi-Manager Diversity] also has the flexibility to move around,” Cockerill said.
One of the key drivers of its performance has been its managers’ ability to switch between defensive and cyclically focused funds at the right time.
“It is a well-diversified fund with a different approach to the traditional cautious-managed fund,” Cockerill said.
“They’ve got things like long/short funds and Artemis Strategic Assets in there but also a lot of cash in there too.”
“What I see here is a fund that is cautious but instead of approaching it in a typical way, 50 or 60 per cent in bonds like Henderson Cautious Managed, for example, they’ve made use of a lot of other vehicles.”
Brookes told FE Trustnet at the end of 2013 that concerns over a potential market correction in the bond market had led him to believe having a high cash weighting was more important than ever.
According to FE Analytics, the FTSE British Government 10-15 Years index lost more than 6 per cent in 2013. It was hit hard by Ben Bernanke’s talk of QE-tapering in late May, but has since recovered since the Fed actually put its plans into action at the end of the year.
Performance of index over 1yr
Source: FE Analytics
FE Research analyst Amandine Thierree says an uncertain environment has led the managers to position the fund relatively cautiously.
“Its cash allocation is high, reflecting the absence of clear market direction. The managers expect a more stable future for the eurozone and have a relatively high exposure to the region.”
“Europe is likely to benefit from capital outflows from emerging markets given the resilience of many of its companies, despite idle economic growth.”
She says the fund’s relatively low exposure to equities has worked well as a hedge against volatility but has inevitably detracted from its performance during strong market rallies.
“This feature, along with managing the right exposure to certain regions and securities, has reduced both the downside and price fluctuations.”
“The managers also learned the lessons of 2008 and were better prepared for the 2011 sovereign debt crisis.”
“But more recently the performance was hurt by its Japanese exposure through its holding in the GLG Japan Core Alpha fund.”
She recommends the fund for those prioritising capital protection and looking for a hands-off approach to investing but not for those expecting equity markets to rally.
