While the economic news has remained resolutely positive in the UK, the stock market has yet to really move on from the highs it hit last spring.
A number of high-profile managers have warned that the news from companies isn’t good, meaning that there could be a correction around the corner and it is time to position yourself defensively.
With this in mind, FE Trustnet looked at the funds in IMA Mixed Investment 20%-60% Shares, the old IMA Cautious Managed sector, to see how they performed in the two most recent market corrections.
The sector is popular with investors both for its protective qualities and yield.
Performance of indices since 22 May 2013
Source: FE Analytics
In 2011 markets suffered a major correction, with the FTSE All Share losing 18.17 per cent.
Our data shows that the £264m Close Diversified Income Portfolio was entirely flat during this time, the best result of any of the 144 funds in the sector.
Stephen Hayde took over the portfolio in February of that year and manages it to this day.
The fund is currently defensively positioned, having just 30 per cent in equities.
It has 19 per cent in alternatives, 7 per cent in cash and 43.5 per cent in fixed interest.
Over the past three years the fund has produced top decile volatility figures and is top decile for Sharpe ratio, which measures risk-adjusted returns.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
For that extra help on the downside you would have given up some returns: the fund is up 22.46 per cent compared with the 31.23 per cent from the FTSE 100.
The £221m M&G Episode Income fund produced the next best returns over the period, losing just 2.5 per cent.
Steven Andrew’s fund was very near to the beginning of its life at that point and has grown significantly since then.
It currently has 38 per cent in equity and 54 per cent in bonds. Both funds are top quartile for returns over the past three years.
Eight out of the 10 funds that lost the most money were top quartile for volatility over the past three years but only four for Sharpe ratio.
These are the Close fund, M&G fund, Fidelity Multi Asset Balanced Income and Cazenove Multi Manager Diversity.
Only these four managed to marry low volatility with top-quartile returns.
Baring Multi Asset lost 2.73 per cent during the period and CF Ruffer Total Return lost just 2.97 per cent.
Source: FE Analytics
The most recent major sell-off in the markets came last year.
Between 22 May 2013 and 24 June 2013, the FTSE All Share lost 11.27 per cent.
Only Cazenove Multi Manager Diversity and DB PWM Diversified Conservative Portfolio were among the top-10 performers in both periods.
The £1.3bn, five crown-rated Cazenove Multi Manager Diversity fund is a member of the FE Select 100 list.
The fund, headed up by FE Alpha Manager Marcus Brookes and Robin McDonald, has doubled over the past couple of years, boosted Schroders' acquisition of Cazenove last year.
It was building up its cash weighting over the course of last spring and summer, and it reached a peak in September of 33 per cent.
The managers currently have just 26 per cent in equities with 30 per cent in alternatives and 18 per cent in bonds.
The best result over this time was obtained by the Premier Conservative Growth fund.
This £88m fund, managed by a team led by David Hambidge, is bottom quartile for returns over the past three years, thanks to its conservative focus.
It has, however, been the least volatile fund in the sector.
Source: FE Analytics
Six of the funds in the top-10 are in the top quartile for volatility over the past three years and top-five for Sharpe.
In earlier articles in this series, FE Trustnet looked at UK Equity Income and Global Equity Income sectors.
